On Sep 11, we upgraded our recommendation on Target Corporation (TGT), the operator of general merchandise and food discount stores in the United States, to Neutral from Underperform, following better-than-expected second-quarter fiscal 2013 bottom-line results.
Why the Upgrade?
Target’s adjusted earnings of $1.19 per share increased 6.1% from $1.12 delivered in the year-ago quarter. This relates to results from U.S. operations only. Analysts polled by Zacks had projected earnings of 97 cents per share for the quarter. The quarter reflects disciplined cost management and effective execution of strategy, offset by lower-than-anticipated U.S. comparable-store sales.
However, quarterly earnings including U.S. and Canadian operations, and other items (3 cents a share) came in at 95 cents a share that dipped 10.4% from $1.06 reported in the prior-year quarter. Management now anticipates fiscal 2013 earnings to come in at the lower end of the earlier provided guidance range of $4.70 to $4.90 per share.
As a result, the Zacks Consensus Estimate for this Zacks Rank #4 (Sell) stock dipped 9.7% to $3.89 for fiscal 2013 and 7.3% to $5.05 per share for fiscal 2014 in the last 30 days.
On the other hand, total revenue increased by 2% from the prior-year quarter but fell short of the Zacks Consensus Estimate. We believe Target’s P-fresh remodel program, 5% REDcard Rewards program and Price Match strategy will help sustain sales momentum and enhance customer shopping experience.
However, footfall is expected to be challenging given the near-term headwinds such as higher payroll taxes, sluggish economic recovery and e-Commerce competition. To mitigate this, the company is shifting focus on consumable items, concentrating more on store renovations and enhancing store sales productivity, introducing smaller format stores, and eyeing opportunities in international markets.
Thus, the pros and cons in the stock fairly support our unbiased view on the stock.
Other Stocks to Consider
Until any further upward revision in the Zacks Rank of Target, the other stocks worth considering in the retail sector include Dollar General Corporation (DG), Ross Stores Inc. (ROST) and Fortune Brands Home & Security, Inc. (FBHS) all sporting a Zacks Rank #2 (Buy).
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