Although Target (TGT) has had an incredible rise to its current spot as the only real challenger to Wal-Mart (WMT), the company has seen a tumultuous run in the recent past. First, it was a severe data breach which crushed consumer trust in the brand and then more recently, shuttering all stores in the company’s Canada division.
Both events have definitely had an impact on the company’s bottom line, but the future prospects for TGT are looking bright. Target appears well-positioned to take advantage of the strong economic growth in the U.S., lower gas prices, and solid levels of consumer confidence.
TGT in Focus
Target is a Minnesota based retailer which has close to 2,000 stores across the United States. The company is the second largest discount retailer in the U.S. and it has done a great job in appealing to younger consumers, a task that giant Wal-Mart is increasingly struggling with.
But thanks in part to this focus on younger consumers, Target is looking to finally shake off some of its recent woes and put up a solid year of growth. Analysts seem to agree with this sentiment too as we have seen strong earnings estimate revision activity following the closing of the Target Canada division suggesting that those following the company the closest like TGT’s prospects for 2015.
Recent Earnings Estimates
We have not seen a single earnings estimate revised lower for TGT stock in the past 30 days, while we have seen eight move higher for the current quarter and then six move higher for the current year.
And with earnings fast approaching, it is important to note that the magnitude of these revisions have also been impressive. The current quarter consensus has actually moved from $1.21/share 60 days ago to $1.46/share today, enough to move TGT from a year-over-year earnings contraction to expectations of double digit earnings growth.
But don’t worry too much about these increased expectations as Target has shown the ability to meet or beat estimates when it comes to earnings season. The company has put up an average surprise of 17% over the past four quarters, while it is also riding an incredible miss-free earnings streak which you can see in the chart below:
Bottom Line
The current market conditions favor consumer discretionary stocks. Not only are we seeing solid job gains, but wages are finally growing as well. And with more cash in consumers’ pockets, not to mention lower costs thanks to the oil crash, there is just simply more money to go around for retail companies.
If this wasn’t enough, TGT is finally getting over its recent troubles and analysts believe that the turnaround can continue. That is why TGT currently has a Zacks Rank #1 (Strong Buy) and that we are looking for outperformance from this company in the near term.
So if you are looking for a top consumer stock to take advantage of the current economic environment, look no further than TGT. The company has been surging, but with its streamlined operations there seems to still be room for stock price appreciation for investors who want to get in on this company ahead of its key earnings report later this month.
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