Is The Most Watched Stock Target (TGT) Company Worth Betting Now?
Target (TGT) is one of the most viewed stocks by Zacks.com visitors lately. So it might be worth looking at some of the factors that could affect the stock’s short-term performance.
Over the past month, shares of this retailer have returned -1.4%, compared to the -5.1% change in the Zacks S&P 500 composite. During this period, the industry Zacks Retail – Discount Stores , in which Target is located, lost 3.2%. The key question now is: what could be the future direction of the title?
Although media reports or rumors of a material change in a company’s business outlook usually cause its stock to trend and result in an immediate price change, there are always certain fundamental factors that ultimately determine the buy and hold decision.
Revisions to earnings estimates
At Zacks, we prioritize evaluating change in a company’s future earnings projection over anything else. This is because we believe that the present value of its future income stream is what determines the fair value of its stock.
Our analysis is primarily based on how sell-side analysts covering the stock revise their earnings estimates to reflect the latest trading trends. When a company’s earnings estimates increase, the fair value of its stock also increases. And when the fair value of a stock is higher than its current market price, investors tend to buy the stock, causing its price to rise. For this reason, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term movements in stock prices.
Target is expected to post earnings of $2.14 per share for the current quarter, representing a year-over-year change of -29.4%. Over the past 30 days, the Zacks consensus estimate has changed by -12.2%.
The consensus earnings estimate of $8.11 for the current fiscal year indicates a year-over-year change of -40.2%. This estimate has changed by -4.5% over the last 30 days.
For the next fiscal year, the consensus earnings estimate of $12.07 indicates a change of +48.8% from what Target is expected to report a year ago. Over the past month, the estimate has changed by -0.6%.
have a strong externally audited balance sheet, our proprietary stock rating tool, Zacks Rank, provides a more conclusive picture of a stock’s price direction in the short term, as it effectively harnesses the power of earnings estimate revisions. Due to the magnitude of the recent consensus estimate change, as well as three other factors related to earnings estimatesTarget is rated Zacks Rank #3 (Hold).
The chart below shows the evolution of the company’s consensus 12-month EPS estimate:
12 month EPS
Revenue Growth Forecasts
While a company’s earnings growth is arguably the best indicator of its financial health, nothing happens if it can’t grow its revenue. It is almost impossible for a company to increase its profits without increasing its revenue for long periods of time. Therefore, knowing the potential revenue growth of a business is crucial.
For Target, the consensus sales estimate for the current quarter of $26.38 billion indicates a year-over-year change of +2.8%. For the current and future fiscal years, the estimates of $109.82 billion and $113.73 billion indicate variations of +3.6% and +3.6%, respectively.
Latest reported results and history of surprises
Target reported revenue of $26.04 billion last quarter, representing a +3.5% year-over-year change. EPS of $0.39 for the same period versus $3.64 a year ago.
Compared to the Zacks consensus estimate of $26.16 billion, reported revenue is a surprise -0.47%. The EPS surprise was -45.07%.
In the past four quarters, Target has exceeded consensus EPS estimates twice. The company has exceeded consensus earnings estimates twice during this period.
Without considering the valuation of a stock, no investment decision can be effective. Crucial to predicting a stock’s future price performance is whether its current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects.
Compare the present value of a company’s valuation multiples, such as its price/earnings (P/E), price/sales (P/S), and price/cash flow (P/CF), to its own historical values help determine whether its stock is fairly valued, overvalued or undervalued, while comparing the company against its peers on these metrics gives a good idea of the reasonableness of its price.
The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to traditional and unconventional valuation metrics to rank stocks from A to F (an A is better than a B; a B is better than a C; and so on), is quite useful in determining whether a stock is overvalued, correctly priced, or temporarily undervalued.
The target is rated B on this front, indicating that it is trading at a discount to its peers. Click here to see the values of some of the rating metrics that led to this rating.
The facts discussed here and plenty of other information about Zacks.com might help determine whether or not it’s worth paying attention to the market buzz about Target. However, its No. 3 Zacks ranking suggests it could perform in line with the broader market in the near term.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.