Target Second Quarter Earnings Preview

Target [[TGT]] is scheduled to report their second quarter results before the market opens on Tuesday, August 18. 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 $15.31 billion and EPS of $.67. This would represent a 1% decline in revenues from last year’s $15.47 billion in the same period. The current analyst consensus estimates calls for revenues of $15.33 billion and EPS of $.66. The company’s latest guidance was for EPS to “meet or exceed $.64”.


While top-line growth remains challenging due to weak economic factors, Target continues to deliver strong margins through solid expense management. There is also evidence that consumer confidence has begun to increase as many are beginning to finally see a light at the end of this economic tunnel. While consumer spending is not expected to increase significantly in the near term, we believe it’s likely that the Target will exceed Wall Street’s earnings estimates for the remainder of the year.


The weakest area of Target’s business has been their credit card segment as increasing delinquency rates and credit write downs have weighed on the segments results. However, with unemployment subsiding and the credit markets improving, we expect that the credit card business will have much less of a negative impact in coming quarters.  


Stock Performance

Since the beginning of 2009, Target’s shares have gained over 22% which has significantly better than the nearly 6% gain in the Dow Jones industrial average. Last year, TGT’s stock fell 31% and performed relatively inline with the 34% drop in the Dow Jones industrial average.



Shares are now trading at 13x consensus 2010 EPS estimates. This is inline with the relative valuations of their peer group. We expect further multiple expansion across most consumer stocks which should provide further lift to Target’s stock performance.


Recommendation: Buy with a $44 price target.


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