Target (TGT) has been one of the most searched stocks on Zacks.com recently, so it is advisable to take a look at some facts that could shape this stock's performance in the near term.
Over the past month, shares of this retailer have risen +8.2% compared to a +3% gain for the Zacks S&P 500 Composite Index. The Zacks Retail – Discount Stores industry, which Target belongs to, has gained 7.9% during that period. The big question here is, what is the direction of this stock going forward?
Media announcements or rumors of significant changes in a company's business outlook will usually make the stock “trend” and cause immediate price movements, but there are always some fundamental facts that ultimately drive the buy-and-hold decision.
Earnings forecast revision
At Zacks, we evaluate changes in a company's future earnings estimates above all else because we believe the present value of future earnings streams determines the fair value of a stock.
Our analysis is essentially based on how sell-side analysts covering the stock are revising their earnings forecasts in light of the latest business trends. When a company's earnings forecast goes up, the fair value of its stock also goes up. And if a stock's fair value is higher than its current market price, investors are more inclined to buy the stock, resulting in an increase in its share price. For this reason, empirical research shows a strong correlation between trends in earnings forecast revisions and short-term stock price movements.
For the current quarter, Target is projected to post earnings of $2.27 per share, which would represent a +8.1% change from the year-ago period. The Zacks Consensus Estimate has changed +1% over the past 30 days.
The consensus earnings estimate for the current fiscal year is $9.49, indicating a change of +6.2% year over year. This estimate has changed +1.9% over the past 30 days.
Looking at the next fiscal year, the consensus earnings estimate is $10.55, which represents a +11.1% change from what Target was expected to report a year ago. Over the past month, estimates have changed +0.4%.
The Zacks Rank, our proprietary stock rating tool with a strong outside-audited track record, effectively harnesses the power of earnings estimate revisions to provide more certainty about near-term stock price direction. The magnitude of the recent change in consensus estimates, along with three other factors related to earnings estimates, have earned Target a Zacks Rank #3 (Hold).
The story continues
The chart below shows the evolution of the company's consensus EPS estimates over the next 12 months.
12 Month EPS
Revenue Growth Forecast
Revenue growth is arguably the best indicator of a company's financial health, but if a company can't grow its revenue, then nothing happens. After all, it's nearly impossible for a company to grow its revenue over the long term without growing its revenue. Therefore, it's important to know a company's revenue growth potential.
For Target, the consensus revenue estimate for the current quarter is $25.96 billion, indicating a +2.2% change year-over-year, while estimates for the current and next fiscal years are $106.78 billion and $110.29 billion, indicating changes of -0.6% and +3.3%, respectively.
Last reported results and surprise history
Target reported revenue of $25.45 billion in its most recent quarter, up 2.7% from the same period a year ago. EPS was $2.57 for the same period, up from $1.80 a year ago.
Compared to the Zacks Consensus Estimate of $25.23 billion, reported revenues represented a surprise of +0.89%. EPS surprise was +18.98%.
Over the last four quarters, Target has surpassed consensus EPS estimates three times, and the company has topped consensus revenue estimates each time during that period.
evaluation
No investment decision can be efficient without taking into account stock valuation. To predict the future price movement of a stock, it is important to determine whether the current price properly reflects the intrinsic value of the underlying business and the company's growth prospects.
Comparing the current value of a company's valuation multiples such as Price to Earnings (P/E), Price to Sales (P/S), Price to Cash Flow (P/CF) with its historical values helps in identifying whether the stock is fairly valued, overvalued or undervalued. Also, comparing a company with its peers based on these parameters gives a good idea of how reasonably priced its stock is.
The Zacks Value Style Score, a part of the Zacks Style Scores system, evaluates both traditional and non-traditional metrics, categorizes stocks into five groupings from A to F (A is better than B, B is better than C, etc.) to help identify whether stocks are overvalued, fairly valued or temporarily undervalued.
On this scale, Target is rated an A, indicating that it is trading at a discount relative to its peers. To see the values of the valuation metrics that drove this rating, click here.
Conclusion
The facts discussed here, and many other information on Zacks.com, may help you decide whether the market buzz surrounding Target is worth following, however, its Zacks Rank #3 suggests that Target is likely to perform in line with the overall market in the near term.
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