On Jan 22, 2015, Zacks Investment Research upgraded Target Corporation (TGT) to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
Target has been in the news ever since it announced the shuttering of its Canadian operations on Jan 15. The decision to wind up Canadian operations followed a comprehensive evaluation which concluded that attaining profitability in the region was not possible before 2021. This compelled Target to abandon the region and focus on its domestic business.
The company believes that the closure will be accretive to its earnings going forward as this will enable it to deploy resources solely in the domestic markets and focus on developing its omni-channel capacities.
Performance in the U.S. has already started to improve given the company’s overhauling drive, effective price and inventory management along with product diversification. Moreover, it is now focusing on developing an online portal in order to keep up with changing trends and also to boost revenues. The company is also adding more products to its online assortment and providing free shipping.
Additionally, with Brian Cornell being elected as the Chief Executive Officer and Chairman, management is hopeful about battling near-term headwinds and transforming into a leading omni-channel retailer. The impact of the data breach is also wearing off, much to the relief of the company’s management.
These factors have led the company to post better-than-expected third-quarter results. Earnings per share of 54 cents and revenues of $17,732 million easily surpassed the Zacks Consensus Estimate of 47 cents per share and of $17,529 million, respectively.
Given the exit from Canada, analysts have become more constructive on the stock as reflected in the upward estimate revision. In the last 30 days, estimates for fiscal 2014 increased 27.2% to $4.11 per share and for fiscal 2015 it increased 18.8% to $4.61 per share.
Moreover, the company has delivered positive earnings surprises in the trailing four quarters with an average beat of 17.4%.
Other Stocks to Consider
Other retailers worth considering include J. C. Penney Company, Inc. (JCP), Bebe Stores, Inc. (BEBE) and Rite Aid Corporation (RAD), all sporting a Zacks Rank #1.
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