Target's [TGT] share price has climbed over 40% over the past 12 months. Moves into digital and redesigning its stores have paid dividends, with the stock outpacing rivals Walmart. But disappointing holiday sales saw the share price tumble in January. And, like the rest of the S&P 500, the stock has tumbled on coronavirus fears.
But for bargain-hunting investors, Target's share price could look undervalued. Particularly if the stock benefits from a post-announcement bounce. So is now the time to buy?
When is Target reporting Q4 results?
Why should investors care
Simply Wall Street argues that Target is really worth $82 billion. That's a lot higher than its current market cap of around $52 billion. The method they use is discounted cash flow. It looks at expected future cash flows and discounts them to their present value. After doing the math, Simply Wall Street suggests that Target’s share price is trading at a hefty discount:
"Compared to the current share price of US$112, the company appears quite undervalued at a 31% discount to where the stock price trades currently."
The site points out that the method doesn't take cyclical market events into account however, and traders should only use it as a rough estimate. Still, it adds weight to value investors’ argument, leaving some considering target’s share price somewhat of a bargain.
|PE ratio (TTM)||16.47|
|Quarterly Revenue Growth (YoY)||4.70%|
Target share price vitals, Yahoo Finance, 02 March 2020
Digital adds to sales, but holidays disappoint
Target and other big-box retailers have upped their digital and delivery services presence to fend off Amazon Prime. Between November and December, same-day delivery accounted for 50% of Target's digital sales. Overall, digital sales soared 19% over the holidays.
Still, there's no getting away from the fact that Target took a hit over the holiday period. Sales were up just 1.4% over November and December compared to the rest of the year. That was well off Target's own projection of between 3% and 5%. And it was even further off the 5.7% seen in the same period last year.
Target pinned the blame on softer-than-expected sales of electronics, toys and homeware. It now expects sales growth for Q4 to be in line with the 1.4% seen in the holiday period.
Still, Brian Cornell, Chairman and Chief Executive Officer of Target Corporation (pictured) remains bullish on Target's full-year performance:
"... because of the durability of our business model, we are maintaining our guidance for our fourth-quarter earnings per share. We also remain on track to deliver historically strong full-year results in 2019, including comparable sales growth of more than 3 percent and record-high EPS reflecting mid-teens growth compared with last year."
“We also remain on track to deliver historically strong full-year results in 2019, including comparable sales growth of more than 3 percent and record-high EPS reflecting mid-teens growth compared with last year” - CEO Brian Cornell
What do analysts expect for Q4 and beyond?
Wall Street expects earnings to come in at $1.66 a share, up from $1.53 seen this time last year. Revenue is expected to come in at $23.49 billion, up 2.2% from the $22.98 billion reported last year.
Despite the disappointing holiday sales, Target hasn't changed its full-year guidance. For Q4, the firm expects adjusted EPS of $1.54 to $1.74, with full-year EPS of $6.25 to $6.45.
Target's expected Q4 revenue
For income-seeking investors, the stock has a forward dividend of 2.5%. That beats both Walmart (1.96%) and Costco (0.89%).
Analysts have a $135.14 average share price target for Target. Hitting this would see a 31% upside on the current share price. Despite this, of the 26 analysts tracking the stock on Yahoo Finance, 18 have a Hold rating.