Target Earnings Preview: First Quarter 2009

Target [[TGT]] is scheduled to report their first quarter 2009 results before the market opens on Wednesday, May 20. Based on our analysis, we at are expecting TGT to report better than expected results that exceed Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $14.76 billion and EPS of $.60. This would represent essentially flat growth in revenues from last year’s $14.80 billion in the same period. The current analyst consensus estimates calls for revenues of $14.81 billion and EPS of $.59.


Wall Street analysts have been furiously raising their quarterly earnings estimates after Target stated on May 7th that they expected results to be “well above the current median First Call estimate of 52 cents.” Comparable store sales appear to be coming in above expectations as store traffic levels have increased. In addition, credit card write-downs appear to have stabilized. Target’s credit card exposure has weighed down the company in the past, but investors are hopeful that the company has reached an inflection point.


While earnings performance is expected to be strong, the story capturing the headlines these days involve the proxy battle between the company and major investor Pershing Square Capital Management. The hedge fund run by William Ackman is relentlessly pushing for a new slate of directors that will change the direction of the company. While the outcome of the proxy vote could be significant, an economic recovery will drive improved performance much more than a new board of directors will.


Share Performance

Since the beginning of the year, Target’s shares have gained over 17%. In 2008, TGT’s shares fell 31% as the stock fell basically inline with the 34% decline in the Dow Jones industrial average.



Shares are now trading at 14x consensus 2010 EPS estimates. This is above the relative valuations of their peer group. Target shares have already gained 17% this year and appear to be trading close to their fair market value. While upside earnings may move the stock slightly, it is likely that we will need to see further signs of an economic recovery before the stock moves beyond $45 per share.


Recommendation: Hold with a $45 price target.


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