Target announced that it planned to “right-size its inventory for the balance of the year and create additional flexibility to focus on serving guests in a rapidly changing environment.”
As a result, Target expects that its second-quarter operating margin rate will be in a range around 2%. Previously, Target expected that its operating marging rate would be in a wide range centered around 5.3%. In the second half of the year, operating margin rate is expected to grow to 6%.
Put simply, Target’s second-quarter results will look bleak. In addition, the market is worried that the economic situation is worse than previously expected due to inflation.
What’s Next For Target Stock?
Analyst estimates have moved lower after the disappointing first-quarter report. Target is expected to report earnings of $10.6 per share in the current fiscal year and $13.3 per share in the next fiscal year, so the stock is trading at 11 forward P/E.
While current valuation levels are not expensive, traders should keep in mind that analyst estimates will continue to move lower after another gudiance cut.
More, recent news from various firms, including Tesla, signal that the economy may face problems in the second half of this year. In this light, it remains to be seen whether the market will believe that Target’s problems will be limited to the second quarter and that the company would get back to planned operating margin levels in the second half of the year.
Barclays downgrades Best Buy after analysing its recent earnings report.
Retailers’ stocks remain under pressure after disappointing reports from Walmart and Target.
Best Buy is trading at just 7 forward P/E, so the stock could be attractive for speculative traders who are willing to bet that the recent sell-off was not justified.
Best Buy Falls After Analyst Downgrade
Shares of Best Buy found themselves under pressure after Barclays cut its rating for the stock after the first-quarter report, which was released on May 24.
Best Buy reported revenue of $10.65 billion and adjusted earnings of $1.57 per share, beating analyst estimates on both earnings and revenue. Comparable sales declined by 8.0%, but the report did not put additional pressure on the stock as it has already declined by about 25% in several weeks.
The recent weeks have been challenging for retail stocks. Leaders like Walmart and Target suffered heavy losses, creating significant pressure on the whole segment. The analyst downgrade served as an additional bearish catalyst for Best Buy stock and pushed it closer to yearly lows.
What’s Next For Best Buy Stock?
Analyst estimates for Best Buy have been moving lower in recent months. Currently, the company is expected to report earnings of $8.86 per share in the current year and earnings of $10.35 per share in the next year, so the stock is trading at just 7 forward P/E.
While current valuation levels look cheap, analyst estimates may remain under pressure if analysts see signs of economic problems. The recent reports from retailers highlighted current challenges, and it remains to be seen whether the second-quarter reports will be better.
At the same time, it should be noted that current valuation could be attractive for speculative traders who are ready to bet that Best Buy stock can rebound after losing more than 25% of its value since the start of this year.
The Fed’s “minutes” are due out at 1 p.m. CST today and most expect they will indicate additional 50-basis point rate hikes coming up in both the June and July meetings. The minutes could also offer more details on the Fed’s balance sheet reduction plan. There are some worries about liquidity in the bond markets later down the road as the Fed’s monthly reductions increase, so insiders will be looking for clues as to how they might accommodate that.
U.S. Fed Chair Jerome Powell yesterday noted that high inflation and economic weakness overseas could derail the central bank’s efforts to avoid a recession.
Powell has been promising that the Fed will be able to tighten financial conditions enough to cool inflation without significantly denting growth or causing unemployment to go up, aka deliver a “soft landing.” In an interview yesterday, however, Powell said economic woes in the EU and China in particular will make it much more difficult to deliver that result. Powell also said that if inflation fails to ease in coming months, “we’re prepared to do more,” which some Wall Street insiders take to mean that a 75-basis point hike is a possibility.
Investors are extremely anxious to see the PCE Prices Index on Friday. The Core PCE, one of the Fed’s favorite inflation gauges, dropped back to an annual rate of 5.2% in March versus 5.3% previously .
Stock bulls overall are having a tough time finding a major upside catalyst especially as the multiple headwinds have begun to inflict damage on corporate earnings.
Weaker retailer outlooks the last couple of weeks have also been underpinning concerns that the U.S. economy is headed toward a recession. Most retailers are walking back forward guidance as they struggle against hire costs for wages and transportation, ongoing supply chain fallout, and changes in spending habits as consumers adjust to inflation.
Even some of the biggest names like Walmart and Target are struggling. In fact, there are report circulating that Amazon is talking about sub-leasing +10 million sqft. of its retail space. Keep in mind, Amazon stock has given back all of its pandemic gains. While the US consumer has seen -$9 Trillion of US household wealth vanish in the past few months. At the same time we are starting to see new home sales fall off a cliff.
Data released yesterday showed the sales of new US homes plummeted last month by the most in nearly nine years, dented by the combination of high prices and a steep climb in mortgage rates. Purchases of new single-family homes decreased -16.6% to an annualized 591,000 pace, the weakest since April 2020, basically the height of the covid scare. The median new home price soared nearly +20% from a year ago to a record $450,600. There were 444,000 new homes for sale as of the end of the month, the most since 2008. However, very few of those had yet to be completed. Of the total 444,000 new homes on the market in April, just 38,000 were finished.
Houses under construction made up +65% of the inventory, with homes yet to be built accounting for about 27%. The backlog of homes waiting to begin construction is at an all-time high thanks to material shortages and higher input costs. Bottom line, new home sales declined in all four US regions, including by double digits in three.
I should note, new-home purchases account for about 10% of the overall market and are calculated when contracts are signed. They are considered a timelier barometer than purchases of previously owned homes, which are calculated when contracts close.
As for today’s corporate earnings, Dick’s Sporting Goods, NVIDIA, Snowflake, Stellantis, and Williams Sonoma are scheduled to report.
At the end of the day, the price determines our loss or profit. Therefore, we should focus our research on price action rather than time lagging indicators or market fundamentals.
Following and trading price simply means that the market tells the trader what to do and not the other way around. Being one with price deposits money into a trader’s account. Whereas fighting price withdraws money out of a trader’s account. The price action is “Always” right as it does not care what a trader’s opinion or bias is.
Bull markets can go on for many years, but bear markets happen unexpectedly and can quickly destroy a trader’s profits or even their account. Bear markets move with a greater velocity than bull markets and they are accompanied by high volatility due to investor emotions (Fear, Greed, & Hope).
The simple definition of a bear market is a drop in price of -20% or greater from its recent maximum peak. Therefore, once a market drops -by 20% or greater, it is a bear market.
SUDDEN BIG price action UP DAYS CAUSE “FOMO”
Bear markets behave differently than bull markets in that bear markets are known for having sharp rallies. These rallies may last from 1-2 days to a few weeks. When these rallies occur, they tend to be an irresistible trap for many investors who are experiencing the fear of missing out “FOMO” syndrome. Institutions and professionals use “FOMO” to liquidate existing holdings and/or short the market.
History has shown that some of the greatest stock market percentage gain days have occurred during bear market periods. The following table is from Wikipedia and shows us that most if not all the extreme daily percentage gains or losses occurred within bear market time periods.
LIST OF LARGEST DAILY CHANGES IN THE S&P 500 INDEX
“SUCCESSFUL INVESTING IS A BATTLE FOR FINANCIAL SURVIVAL” – G.M. LOEB
Volatility generally has ruined many investors and traders. It’s one thing to trade a stock that experiences a 1-3% daily move. Trading in a stock, however, that is swinging 5-10% or has a sudden earnings surprise gap down of -20% is dangerous as it has the potential and high probability of eventually bankrupting most trading accounts.
Gerald Martin Loeb (July 24, 1899 – April 13, 1974) was a founding partner of the E.F. Hutton & Co. brokerage firm, acquired by Shearson Lehman Brothers in 1987 for almost $1 billion. He was a renowned wall street trader and the author of “The Battle for Investment Survival”.
Loeb stated: “When I started investing about 1921, it seemed a peaceful enough occupation. By 1943, I started calling it a “Battle”, though a lot of people might have used the term much earlier from 1929 to 1932. But now in 1957, it seems to be a “War”.
Here are some relevant quotes for our current market environment from Loeb’s book:
“I favor doing one’s major forecasting from the tape or, to put it another way, from the price movement.” “This to me is elemental and necessary to success.”
“The preservation of capital should be looked upon as something that normally costs a price.”
“It is far better to let cash lie idle than to buy just to “keep invested” or for “income”.”
“Losses must always be cut. They must be cut quickly, long before they become of any financial consequence.”
“The lessons of the 1923 stock market break taught me what I had to know to not get caught in the crash of 1929 to 1932.”
“There have been at least 8 periods since the turn of the century (1000) when the stock market, as measured by the Dow Jones Industrial Average, has dropped as much as 40%.” “It has happened before and of course will happen again.”
Let’s review and study some current markets that are now in a bear market.
SPY S&P 500 -20.58%
SPY S&P 500 ETF – The SPY has experienced a sharp -18.04% sell-off during the last 51-days. Even though the SPY has not closed below the dreaded -20% peak-to-trough level, price action has violated this level intraday.
If or when we are fortunate enough to get a sharp multi-day rally back up, we should be looking to liquidate any stocks that we are still holding. Depending upon the rally magnitude a trader may want to consider buying an inverse ETF of the SPY such as SH ProShares Short S&P 500 Inverse ETF (-1x).
Market volatility remains high, and history has shown it may expand considerably. For most traders, the best advice is to go to cash and ride out this storm from the sideline. In case you think this statement seems extreme please review the accompanying stock charts.
SPDR S&P 500 ETF TRUST • SPY • ARCA • 4-HOUR
DEERE & COMPANY -29.01%
Deere (NYSE: DE), is a major American multinational manufacturer of farm machinery and industrial equipment.
Deere’s price action, after taking out a 10-month triple top and making a new all-time high, plunged by -29.19% in just 30+ days. This is the worst drop in 14-years as Deere cited supply chain snags, rising inflation, and unfavorable currency translation headwinds.
DEERE & COMPANY • DE • NYSE • 4-HOUR
TARGET CORPORATION -43.42%
Target (NYSE: TGT), is an American department store chain and the eighth largest retailer in the United States.
Target’s price action has dropped about -40% in the last 30-days including a whopping -25% a single day. Target had missed its earnings forecast by -$1.50 citing inflation, and supply chain factors. This was the biggest loss in Target’s stock price since 1987.
TARGET CORPORATION • TGT • NYSE • 4-HOUR
ROSS STORES INC -47.23%
Ross (NYSE: ROST), is an American chain of discount department stores.
Ross price action has dropped more than -35% in the last 30-days including an opening price plunge of just shy of -25%. Ross’s massive opening price drop was precipitated by the company’s first-quarter 2022 earnings update where they reported comparable-store sales declined -by 7% due to inflation pressures impacting the retail consumer.
ROSS STORES INC • ROST • NASDAQ • 4-HOUR
TESLA INC -48.95%
Tesla (NASDAQ: TSLA), is an American automotive and clean energy company that designs and manufactures electric vehicles, battery energy storage from home to grid-scale, solar panels and solar roof tiles, related products, and services.
Tesla’s price action has dropped more than -44% in the last 45-days. Only a few months ago Tesla’s market cap was over $1 trillion. At its current level, Tesla’s market cap is now $687 billion which represents approximately a $400 billion loss in value from its early January 2022 high.
TESLA INC • TSLA • NASDAQ • 4-HOUR
LEARN more about price action FROM OUR TEAM OF SEASONED Traders
In today’s market environment, it’s imperative to assess your trading plan, portfolio holdings, and cash reserves. Experienced traders know what their downside risk is and adapt as necessary. Successful traders manage risk by utilizing stop-loss orders, rebalancing existing positions, reducing portfolio holdings, liquidating investments, and moving into cash.
Managing risk and expectations for both investments in real estate and the stock market is the key for long-term success. Do this, and you can avoid the rollercoaster ride of doing nothing to protect your investments.
Successfully managing our drawdowns ensures our trading success. The larger the loss, the more difficult it will be to make up. Consider the following:
A loss of 10% requires an 11% gain to recover
A 50% loss requires a 100% gain to recover
A 60% loss requires an even more daunting 150% gain to simply return to break even.
Recovery time also varies significantly depending upon the magnitude of the drawdown. A 10% drawdown can typically be recovered in weeks or months, while a 50% drawdown may take years to recover.
Depending on a trader’s age, they may not have the time to wait on the recovery or the patience. Therefore, successful traders know it’s critical to keep their drawdowns within reason. Most of them learned this principle the hard way.
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US equities fell sharply Wednesday, S&P down 4%, the most significant daily decline since June 2020. The weakness came as Target’s quarterly earnings added fuel to the recession risk narrative, while the drop of US10 year yields down 10bps to 2.88% offered little support. And Oil settled at 2.3% lower on the day.
Equities continue to be at the mercy of broader macro themes, with more hawkish comments from Fed Chair Jay Powell leading to a further move higher in front-end rates, which continues to prove problematic for risk.
Medium-term, the Fed is likely to respond to any easing in financial conditions by ratcheting up the hawkish noises and, in effect, acting as a lid on the markets. And this should keep active money on the sidelines.
The relief rally trap door sprung when the S& P 500 4000 pins snapped after Target‘s earnings results exacerbated some recession fears that continued the theme of rising inventories detailed by Walmart on Tuesday. And the broad-based sell-off absolutely hammered tech.
Indeed, contagion from bellwether consumer earnings prints is sending stagflationary shockwaves through the market, and equities suffered another massive bout of indigestion after yesterday’s Alka Seltzer moment.
While rising inventories and higher inventory/sales ratios are not new, the big boxes now confirm recessionary worries and catalyze the severity of the sum of all stagflationary fears.
Oil Fundamental Analysis
The China reopening trade got blindsided by intense global recessionary impulses.
It is a very volatile market, but there are enough reasons to suggest why traders are looking to sell in the current environment.
An actual recession is likely one of the few antagonists that can contain oil prices with a supply deficit. And as the procession to recession shortens, oil prices could continue to fall due to demand concerns.
In addition to Venezuela barrels possibly coming to market offsetting the ongoing political fractious Libyan supply disruption, the EU sanctions package currently under discussion would likely legalize Russian supplies’ status quo at least through the year and take pressure off the prompt contract.
FOREX Fundamental Analysis
It was another busy day in G-10 FX with broad-based dollar demand across the spectrum, driven by a hawkish FED and safe-haven demand, which are two primary supportive channels for King Dollar.
Investors continue to evaluate the diverging approaches taken by central banks amid an inflation crisis. Federal Reserve Chair Jay Powell issued some hawkish comments on Tuesday about the possibility of raising the Fed Funds above neutral. At the same time, the Bank of England seems to have fallen behind the curve with its dovish approach, despite rampant inflation data emerging earlier Tuesday.
But folks that trade for a living, not analyze currencies as a job, are looking to buy JPY, which suggests the worm is turning on USDJPY.
Local investor interest in buying USDJPY in the Asian session saw the pair touch a high in the 129.50/60 zone, coinciding with highs in various JPY crosses.
Since then, the pair has been heavy on rallies and opened the North America session near 129.00/10. This morning we open the Asia session at 128.30 as safe-haven demand is kicking in.
The JPY looks attractive with the global economy on the precipice of recession. JPY is interesting as the rise in USDJPY YTD has opened an enormous value gap for what is typically perceived as a safe-haven currency. Historically FX hedges for massive risk-off scenarios suggest that the YEN provides an excellent firebreak to the recessionary flames, especially against a “stock down rates down” seismic shock or a market backdrop consistent with recessionary pricing.
Besides the Brexit risk and the BoE as a reluctant rate hiker, domestic political risk never seems to leave the GBP spectrum. “Red Wall” Conservative members of parliament are planning to ask Chancellor Rishi Sunak to remove Andrew Bailey as governor of the Bank of England. It seems nigh on impossible this would succeed, but it reflects the political pressure being heaped on the BoE.
Bailey is just two years into an eight-year term. Bailey has not helped himself, with comments such as predicting an “apocalyptic” rise in food prices earning him opprobrium from all corners.
Questioning the ability of your top central banker cannot be suitable for the currency.
USDCHF and CHF crosses continue to trade heavily, with little bounces, after SNB Chairman Jordan said the central bank is “ready to act if inflation strengthens.”
There is no relief in the crosses after disappointing quarterly results from major retailers weighed on the broader markets.
Gold is caught in the tug of war between recessionary safe-haven demand and do not fight the fed mode.
It is a tough market for gold investors, with stocks tanking and the street moving into a capitulatory sell-all frame of mind. And even lower bond yields are offering little support leaving bullion investors adrift in no man’s land.
Target stock declined below the $165 level after Q1 report indicated that the company failed to pass higher costs to consumers.
Yesterday, Walmart released a weak quarterly report, and the whole segment is under pressure during today’s trading session.
Target stock is trading at just 10 forward P/E, but analyst estimates will likely decline in the upcoming weeks.
Target Falls After Weak Quarterly Report
Shares of Target gained strong downside momentum after the company released its first-quarter report. The company reported revenue of $25.17 billion and adjusted earnings of $2.19 per share, beating analyst estimates on revenue and missing them on earnings.
According to the report, comparable sales increased by 3.3%, reflecting traffic growth of 3.9%. Operating margin rate was just 5.3%, “driven primarily by gross margin pressure reflecting actions to reduce excess inventory as well as higher freight and transportation costs.” In the second quarter, Target expects that operating income margin rate will be in a wide range centered around 5.3%.
Traders were shocked that Target failed to pass higher costs to consumers, and the stock lost 25% of its value. Yesterday, Walmart also presented a weak report, and it looks that retailers are not as safe as many investors expected.
What’s Next For Target Stock?
Target is expected to report earnings of $14.64 per share in the current year and earnings of $15.95 per share in the next year, so the stock is trading at just 10 forward P/E, which is cheap for the current market environment.
However, the company has just released a weak quarterly report, so analyst estimates will likely decline in the upcoming weeks. In addition, the whole segment is under pressure after disappointing reports from leading companies like Walmart and Target, so retail stocks will likely need additional upside catalysts to break the current downside trend.
The key question is whether Target’s inability to pass higher costs to consumers is a one-time event or a beginning of the new trend, which would hurt its profitability in the upcoming quarters. The company’s Q2 margin forecast is not inspiring, and it remains to be seen whether speculative traders will rush to buy Target stock despite the major pullback.
Stock bulls remain extremely cautious but a bit more optimistic as data indicates a slowdown in manufacturing inflation. The Producer Price Index rose +11% year-over-year in April, higher than expected but a meaningful pullback from March’s +11.5%. Producer prices lead consumer prices, so the report is a good sign overall, though investors, as well as the Fed, will need to see a couple more months of declines before declaring that inflation is indeed cooling.
Economists also warn that goods inflation may be coming down because consumer demand is shifting more to services, meaning high prices could simply be moving from one part of the economy to another. The latest data shows services prices are rising at the fastest rate in three decades with airfare leading the way. Even if inflation has peaked, the question now is, how long will it remain elevated?
Federal Reserve Chair Jerome Powell cautioned yesterday that he can’t guarantee the central bank can deliver a so-called “soft landing” for the economy, pointing to the tight labor market and ongoing supply chain dislocations. Powell also stressed that other “huge events” are playing important roles right now, including Russia’s war in Ukraine, that are beyond the Fed’s control. Powell made the comments after being confirmed by the Senate for a second 4-year term.
The central bank’s target inflation rate is still a “flexible +2%” but several officials have indicated that the new normal might be more in the +2.5% to +3% range. One of the main gauges (but not the only one) the Fed uses to determine the rate of inflation is the Core PCE Prices Index, which for March was running at +5.2%. The April read is due out on May 27, which is a couple weeks ahead of the Fed’s next meeting on June 14-15.
Data to watch
Consumer data recently has been sending mixed signals that are hard to interpret. Sentiment has been mostly falling since the start of the year but consumer spending has not shown any signs of pullback.
Next week, investors get an update on how spending is holding up via April Retail Sales on Tuesday. A slew of fresh housing data next week will provide a deeper look at how substantially higher mortgage rates might be impacting the market. The NAHB Housing Market Index for May is out on Tuesday, followed by April Housing Starts on Wednesday, and April Existing Home Sales on Thursday.
Several key earnings are on the calendar next week as well, including Home Depot and Walmart on Tuesday; Cisco, Lowe’s, Target, and TJX Companies on Wednesday; Applied Materials, Palo Alto Networks, and Ross Stores on Thursday; and Deere & Co. on Friday.
Target Corp. shares soared over 12% on Tuesday after the Minneapolis, Minnesota-based company reported better-than-expected earnings in the holiday quarter and forecast solid sales this year despite ongoing supply chain disruption.
The company, which is one of the largest North American retailers offering customers both everyday essentials and fashionables, reported quarterly adjusted earnings of $3.19 per share, beating the Wall Street consensus estimates of $2.85 per share.
The retailer said its revenue climbed over 9.0% to $31 billion in the fiscal fourth quarter ended Jan from a year earlier. That missed the market expectations of $31.39 billion. Target’s total comparable sales grew 8.9% in the fourth quarter, reflecting comparable stores sales growth of 8.9% and digital sales growth of 9.2%.
“Our strong fourth-quarter performance capped off a year of record growth in 2021, reinforcing the durability of our business model and our confidence in long-term profitable growth,” said Brian Cornell, chairman and CEO of Target.
For the fiscal year 2022, Target forecasts low- to mid-single-digit revenue growth, an operating margin rate of 8% or higher, low-single-digit growth in operating margin dollars, and high-single-digit growth in Adjusted Earnings per Share.
The company expects quarterly, year-over-year profit performance will be variable during the year and generally improve as the year progresses. The company expects its first-quarter 2022 operating margin rate will be favourable in relation to historical performance, but well below its first-quarter 2021 rate of 9.8%.
On Tuesday, Target stock surged over 12% to $227.10. The stock fell over 4% so far this year after surging more than 30% in 2021.
“Target beat 4Q21 consensus estimates with better-than-expected margins. But, the highlight of the release is the 2022 guidance, where Target is endorsing a continuation of 8% or higher operating margins. Many expected an outlook that included more of a give-back relative to the 8%+ outlook for 2021 (this yr ended up being 8.4%),” noted Michael Baker, Senior Research Analyst at D.A. Davidson.
“In the five years prior to the pandemic, operating margins averaged 6.3% and ranged from 5.9%-7.1%. The pre-pandemic all-time high was 7.8% in 2010. This shows that the operational improvements, which were taking hold prior to the pandemic, along with the share gains over the last 2 yrs, are proving to be sustainable.”
Target Stock Price Forecast
Thirteen analysts who offered stock ratings for Target in the last three months forecast the average price in 12 months of $266.17 with a high forecast of $305.00 and a low forecast of $230.00.
The average price target represents a 19.66% change from the last price of $222.44. Of those 13 analysts, eight rated “Buy”, five rated “Hold”, while none rated “Sell”, according to Tipranks.
Morgan Stanley gave the base target price of $255 with a high of $315 under a bull scenario and $165 under the worst-case scenario. The investment bank gave an “Equal-weight” rating on the big-box retailer’s stock.
“Estimates going higher as business expected to compound post-COVID-19. Guide much better than feared. Traffic driven comps impressive, an anomaly across Retail. 8% EBIT margin now the new water level,” noted Simeon Gutman, equity analyst at Morgan Stanley.
“Target (TGT) has firmly established itself as a winner in Retail and deserves a premium multiple vs. historical valuations. Target (TGT) is gaining market share on top of 2020’s wallet share gains, we think Target (TGT) is one of the more attractive ways to play the upside to GDP. We see a positive risk/reward skew in the N-T but results could moderate and the stock path may be uneven, keeping us Equal-weight.”
Several analysts have also updated their stock outlook. Deutsche Bank lowered the target price to $305 from $312. Cowen and company cut the target price to $265 from $300. Goldman Sachs slashed the price target to $271 from $310.
Technical analysis suggests it is good to sell as 100-day Moving Average and 100-200-day MACD Oscillator gives a strong selling opportunity.
The first round of peace talks between Russia and Ukraine failed to make any progress but the two sides agreed to meet again in coming days.
I’m not really sure if that means anything as Russia now has a 40 mile convoy of military equipment and troops headed directly for the Ukraine border. At the same time, most reports indicate that fighting on the ground is intensifying and that Belarus is now preparing to deploy troops to help Russia. It’s still not clear what impact the array of sanctions the West has slapped on Russia might have on global financial markets and trade flows but the Russian economy is already being wrecked.
Russian central bank
The Russian central bank more than doubled its benchmark interest rate to 20% as it attempted to curb a run on banks and stop the fallout in the Russian ruble. At least one major Russian bank is said to be on the brink of collapse.
Meanwhile, the Russian central bank faces being cut off from a large portion of its foreign financial reserves under new restrictions from the West which will make it tougher for Russia to defend its currency. Keep in mind, the Russian ruble fell -30% against the US dollar, making it now worth less than one cent.
Some economists predict the country could face a total economic collapse if the extreme measures are kept in place for very long. Russia is now said to be preparing countermeasures against countries supporting sanctions imposed by the U.S. and its European allies. Most experts think it’s unlikely that Russia will curb its oil or gas supplies as they account for a sizable portion of the country’s GDP. However, most Russia experts also agree that it’s hard to predict what Putin might do if he feels like he’s been backed into a corner and humiliated over his miscalculation that Ukraine would be an easy land grab.
Inflation in USA
The most immediate threat to the U.S. at the current moment is that the conflict will push inflation even higher and the Federal Reserve will eventually have to get more aggressive in its efforts to bring prices down, possibly pushing the economy into a recession.
A lot of bulls believe that the U.S. consumer is actually strong enough to weather a period of both elevated inflation and higher borrowing costs thanks to healthy savings and the strong increase in asset prices witnessed over the past year and a half. I question that perspective, as I’ve seen some recent data that shows the US consumers savings level is getting back to pre-Covid levels and the higher costs of energy and housing might soon start taking a bigger bite. In fact, many bears warn that inflation is already eroding savings as well as spending power with double-digit price gains for consumer goods adding an estimated $250 in expenses for the average American household.
Investors will be scrutinizing the ISM Manufacturing Index today for signs that factory level prices might be starting to ease. The gauge climbed in January after easing for two months in a row at the end of 2021. Construction Spending is also due today. On the earnings front, highlights include AutoZone, Dominos Pizza, Hewlett Packard, Hormel Foods, J.M. Smucker, Kohl’s, Ross Stores, Salesforce, and Target.
Traders have been rattled by geopolitical tensions over the Russia-Ukraine crisis, which has caused the global stock market to suffer. The S&P 500 plunged into correction territory. If tensions continue for long, analysts fear that it will be harder for the U.S. Federal Reserve to raise rates after next month’s hike. Due to this, investors sought safe-haven assets and U.S. Treasury yields fell as tensions between Ukraine and Russia increased. In addition, investors will focus on December quarter earnings for stocks that are economically sensitive, which should show better profits than technology stocks amid surging inflation.
The San Jose, California-based communications technology company Zoom is expected to report its fiscal fourth-quarter earnings of $0.67 per share, which represents a year-over-year decline of nearly 24% from $0.88 per share seen in the same period a year ago.
The company, which provides video telephony and online chat services through a cloud-based peer-to-peer software platform, would post revenue growth of 19% to $1.05 billion.
“We have seen a reluctance of investors around Zoom given recent performance of WFH winners. Look to FY23 guide as opportunity to reset Street expectations, giving investors a cleaner path to getting involved. Remain OW on early days company at upselling large installed base with ancillary products,” noted Meta Marshall, equity analyst at Morgan Stanley.
“Zoom has established its position as the leader in video conferencing, now a growth market. Company has meaningful competitive moat built on more than just architecture. Position within customers makes an attractive opportunity to expand into broader UC market. Early wins encouraging. Opportunities to expand platform remain. Manageable churn post-COVID as move to hybrid work setups continues.”
SALESFORCE.COM: The San Francisco, California-based software company is expected to report its fourth-quarter earnings of $0.75 per share, which represents a year-over-year decline of over 27% from $1.04 per share seen in the same period a year ago.
However, the leading provider of enterprise cloud computing solutions would post revenue growth of nearly 25% to $7.24 billion up from $5.82 billion a year earlier. The company has beaten consensus earnings estimates in most of the quarters in the last two years, at least.
“Salesforce.com (CRM) is down 35% since reporting F3Q vs. IGV down 25% due to software selloff, investor fears around demand-pull forward and MuleSoft, and tougher compares in 1HF23. Our survey indicated 88% expect their pipelines to grow with 37% expecting growth of 20%+ in F23. Despite a tough set-up heading into the Q, expectations are low. CRM offers attractive risk-reward as it trades close to trough levels at 5x ’23 rev. vs. comps at 9x (40% discount). Maintain Buy,” noted Brent Thill, equity analyst at Jefferies.
DOMINO’S PIZZA: The world’s largest pizza restaurant by sales is expected to report its fourth-quarter earnings of $4.30 per share, which represents year-over-year growth of about 12% from $3.85 per share seen in the same period a year ago.
The Ann Arbor Michigan-based company has beaten consensus earnings estimates in most of the quarters in the last two years, at least. The largest pizza chain in the world would post revenue growth of 2% to around $1.38 billion from $1.36 billion a year earlier.
The Chesapeake, Virginia-based company Dollar Tree is expected to report earnings of $1.78 per share in the fourth quarter, down over 16% from $2.13 per share seen in the same period a year ago. But the discount variety stores that sells items for $1 or less would post revenue growth of more than 5% to $7.13 billion.
“While supply chain disruptions and associated costs are top of mind given the unexpected magnitude of these costs in 2Q and ongoing impact in 3Q, we believe that Dollar Tree’s price-increase initiative will likely be a focal point for investors. More specifically, we think investors will look to better understand customer receptivity to these price increases, the degree to which these price increases can mitigate the aforementioned supply chain costs, and to what extent the company is utilizing higher price point items to diversify merchandising and sourcing,” noted Randal J. Konik, equity analyst at Jefferies.
Chipmaker and software infrastructure supplier Broadcom is expected to report earnings per share of $8.08 in the fiscal first quarter, which represents year-over-year growth of over 22% from $6.61 per share seen in the same period a year ago.
The San Jose, California-based semiconductor manufacturer would post revenue growth of nearly 14% to $7.6 billion. The company has beaten consensus earnings estimates in most of the quarters in the last two years, at least.
“Broadcom (AVGO) is a compelling franchise in semis with diversified end-market exposure, product cycle momentum in wireless and networking, and market leadership. Furthermore, we take a more constructive view than investors on the company’s software strategy, particularly its purchase of Symantec,” noted Joseph Moore, equity analyst at Morgan Stanley.
“While sentiment has gradually improved, AVGO is still trading below the SOX on a P/E basis despite superior margins and FCF. We see an increase in 5G $ content, a rebound in enterprise, and reacceleration of cloud as tailwinds through 2021; and with the company’s net leverage reduced meaningfully it should be in the position to continue to execute on tuck-in deals in software.”
Costco Wholesale Corp. (COST) reports fiscal Q1 2022 earnings after Thursday’s closing bell, with analysts looking for a profit of $2.65 per-share on $49.75 billion in revenue. If met, earnings-per-share (EPS) will mark a 16% profit increase compared to the same quarter last year. The stock rose 3.3% in September after the company exceeded Q4 EPS guidance with a 17.5% revenue increase, but fell 7% in the next six sessions.
Black Friday Bummer
The big box retailer reported November comparative sales of 9.2%, with net sales rising 15.7% year-over-year. E-commerce growth slowed to 11.7%, held back by tough comparisons after 2020’s pandemic sales surge. Despite those results, investor sentiment is mixed after U.S. Black Friday store sales dropped $100 million compared to last year’s record of $9 billion. In addition, it was the first time the annual event generated no online spending growth.
The stock has defied gravity throughout 2021 and is now boasting an impressive 41% year-to-date return. However, rivals Walmart Inc. (WMT) and Target Corp. (TGT) have struggled in the last four months, suffering through active distribution that increases risk heading into Thursday’s report. In addition, the weekly Stochastic indicator has now flipped into a sell cycle, predicting rangebound action or lower prices into the first quarter of 2022.
Wall Street and Technical Outlook
Wall Street consensus stands at a ‘Moderate Buy’ rating based upon 17 ‘Buy’, 6 ‘Hold’, and no ‘Sell’ recommendations. Price targets currently range from a low of $423 to a Street-high $600 while the stock is set to open Thursday’s session right on top of the median $532 target. This mid-range placement indicates that Costco is fully valued at this time and will need to post blow-out quarterly results to book higher prices.
Costco cleared February 2020 resistance around 325 in August and stalled near the 400 level in November. A secondary breakout in June 2021 attracted intense buying interest, lifting the stock nearly 180 points into November’s all-time high at 560.78. A distribution wave into December has reversed bullish signals, with price action likely to carve an extended trading range, with resistance at the high and support at the 50-day moving average near 500.
Retail superstar Target Corp. (TGT) is trading lower by more than 3% in Wednesday’s pre-market despite beating Q3 2021 top and bottom line estimates. The company posted a profit of $3.03 per-share, $0.22 better than expectations, while revenue rose a healthy 13.2% year-over-year to $25.29 billion, more than $500 million higher than consensus. Store comparative sales increased 9.7%, adding to 9.9% growth in the same quarter last year.
Firing on All Cylinders
Digital comparative sales jumped 29%, marking a major deacceleration compared to the astounding 155% growth posted in Q3 2020. Target now expects to book “high-single digit to low-double digit” comparative sales growth in the fourth quarter, raising guidance from previous expectations for high-single digit growth. The full-year operating income margin rate is expected to be 8% or higher, reflecting strong management of skyrocketing wages and supply chain disruptions.
Target CEO Brian Cornell commented on the quarterly results, admitting he expects supply chain challenges to continue well into 2022 but believes the company is well-positioned for a strong holiday season. He notes that employee retention has improved as Americans slowly settle into the best job market in decades. And, although he insists there is a commitment to “provide great value during inflation”, he failed to make specific predictions on profit margins going forward.
Wall Street and Technical Outlook
Wall Street consensus stood at an ‘Overweight’ rating ahead of the report, based upon 20 ‘Buy’, 3 ‘Overweight’, 7 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $235 to a Street-high $337 while the stock is set to open Wednesday’s session about $24 below the median $285 target. The sell-the-news reaction after a solid quarter and healthy guidance suggests those results were already baked into the stock price.
Target broke out above 4-year resistance in the 80s in July 2019 and entered a powerful uptrend that accelerated after a deep dip in March 2020. The stock nearly tripled in price into the July 2021 high at 267.06, yielding a 40-point pullback into October, followed by a recovery wave that exceeded the prior high by less than two points this week. The post-news reaction matches a bearish volume divergence, with many shareholders using the latest uptick to dump positions. The 50-day moving average near 250 marks the first downside target in this selling wave.
Target workers will have to put in more hours during the holiday period as the company wants them to work 5 million more hours during that period.
Target Reduces Seasonal Hires
Target has announced earlier today that it has reduced its season hires for this year. This would lead to its workers putting in over five million more hours during the holiday period as demands for goods start to come in.
The company revealed this earlier today, stating that as it prepares for a rush of shoppers at stores and on its website, it doesn’t intend to hire as many seasonal workers the upcoming holidays as it has done in the past two years.
The retailer said about 300,000 of its current employees would need to put in five million more hours of work during the holiday period. The additional hours translates into $75 million additional pay for its workers.
Target said it intends to hire 100,000 seasonal workers during the holiday period. However, that is below the 130,000 seasonal workers it has hired over the past two years. Target has more than 1,900 stores across the United States and nearly 350,000. During the summer, Target launched an app that allows its employees to pick up extra shifts. The workers can choose times or swap hours on-demand. Thus, enabling workers to adjust their working hours for other obligations such as parenting or attending a college class.
Target’s Chief Human Resource Officer Melissa Kremer said the new changes were prompted by the pandemic. She added that the pandemic made it necessary for Target to adopt a flexible working condition.
TGT Is Up By Less Than 1%
The shares of Target are trading in the green zone and are up by less than 1% since the market opened an hour ago. TGT is trading at $243 per share at the time of this writing. Year-to-date, TGT is up by nearly 40%. The stock started the year trading at $175 per share, but it is now trading at $243.
Retail outlets like Target are expected to have a busy holiday period as activities in the US and other parts of the world start returning to normal.
The shares of Target are down by roughly 3% today despite the company reporting better-than-expected second-quarter earnings.
Target Reports Excellent Q2 Earnings
Target, a leading retailer in the United States, reported its second-quarter earnings earlier today. The company’s earnings surpassed analysts’ estimation, but its stock continues to trade in the red zone.
According to the retail giant, the earnings per share in Q2 was $3.64, surpassing the $3.49 Refinitiv consensus. Furthermore, the revenue of $25.16 billion also surpassed the $25.08 predicted by leading Wall Street analysts.
Target’s net income rose from $1.7 billion, or $3.35 per share in the same quarter last year, to currently stand at $1.82 billion, or $3.65 per share. Furthermore, the revenue went up by 9.5% to $25.16 billion from the same period last year.
The company’s profits were twice that of 2019, with Target struggling prior to the pandemic. CEO Brian Cornell revealed that the increase in sales is down to the pandemic easing and parents resuming work while their children prepared for school. He added that parents purchased backpacks, lunchboxes and school uniforms ahead of the new school year. The CEO added that college students were amongst the top spenders in the last quarter.
Target expects to see its comparable sales increase in the coming quarter. The comparable sales are a crucial metric that tracks sales online and at stores open for at least 12 months. The retailer said comparable sales should increase by high single digits in the second half of 2021.
Target’s Stock Price Down By 2.79% Today, Performs Excellently YTD
The shares of Target are down by 2.79% today despite the company reporting better-than-expected Q2 earnings. Currently, the stock is trading at $254 per share. Despite the decline in price over the past few hours, Target has performed excellently year-to-date.
TGT began 2021 trading at $174 per share. However, it has rallied by over 40% in the past few months and now trades at $254 per share, making it one of the best-performing stocks in the United States.
Target Corp, one of the largest North American retailers offering customers both everyday essentials and fashionables, is expected to report its second-quarter earnings of $3.49 per share, which represents year-over-year growth of over 3% from $3.38 per share seen in the same period a year ago.
In the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 69%. The Minneapolis, Minnesota-based company would post year-over-year revenue growth of over 8% to $24.84 billion.
Target Corp shares have gained about 50% so far this year. The stocks ended 0.61% higher at $263.15 on Monday. Wednesday’s better-than-expected results could help the stock hit new all-time highs.
On the other hand, the Bentonville, Arkansas-based retailer Walmart is expected to report its second-quarter earnings of $1.56 per share same as a year ago. However, the multinational retail corporation that operates a chain of hypermarkets’ revenue would decline over 1% to $135.9 billion. On average, the retail giant has beaten earnings estimates by over 17% in the last four quarters.
“Walmart (WMT) & Target Corp (TGT) likely to print upside given strong comp sales trends, a healthy consumer bolstered by child tax credits, & one of the best back to school seasons in retail. We prefer TGT given prospects of a greater beat and a lower relative valuation. We also enclose: Cowen’s Target x ULTA analysis, & our online grocery survey highlights WMT’s momentum. Raise TGT price target to $300 & maintain WMT’s $170 price target,” noted Oliver Chen, equity analyst at Cowen.
“We are bullish on the back-to-school market share opportunity, and expect outsized growth at both. Both are well-positioned as their multi-category portfolios should result in benefits across apparel, electronics, school supplies, home, and other categories. That being said, we ultimately give the edge to TGT given its stronger apparel and home assortment, and overall mix of total sales towards these categories.”
Target Corp Stock Price Forecast
Eighteen analysts who offered stock ratings for Target Corp in the last three months forecast the average price in 12 months of $260.76 with a high forecast of $305.00 and a low forecast of $216.00.
The average price target represents a -0.91% change from the last price of $263.15. From those 18 analysts, 14 rated “Buy”, four rated “Hold” while none rated “Sell”, according to Tipranks.
Morgan Stanley gave the base target price of $250 with a high of $290 under a bull scenario and $180 under the worst-case scenario. The firm gave an “Equal-weight” rating on the big-box retailer’s stock.
“Target Corp (TGT) has firmly established itself as a winner in Retail and deserves a premium multiple vs. historical valuations. TGT is gaining market share on top of 2020’s wallet share gains, we think TGT is one of the more attractive ways to play the upside to GDP. We see a positive risk/reward skew in the N-T but results could moderate and the stock path may be uneven, keeping us Equal-weight,” noted Simeon Gutman, equity analyst at Morgan Stanley.
Several other analysts have also updated their stock outlook. Telsey Advisory Group raised the stock price forecast to $305 from $265. Deutsche Bank lifted the price target to $305 from $258. JPMorgan upped the target price to $280 from $260.
Target Corp. (TGT) reports Q2 2021 earnings ahead of Wednesday’s opening bell, with analysts expecting a profit of $3.52 per-share on $25.02 billion in revenue. If met, earnings-per-share (EPS) will mark a modest 5% profit increase compared to the same quarter in 2020, when the world emerged from the first lockdown. The stock rallied 6.1% in May after blowing away Q1 top and bottom line estimates and has carved a long series of new highs into August.
Red Hot Two Year Returns
The retail giant has been a blisteringly-hot performer so far in 2021, posting a 48% year-to-date return on top of last year’s 37% return. In fact, it hasn’t touched the 50-month moving average since May 2019 despite repeated trips into that level between 2014 and 2018. Therein lies the problem for sidelined investors, i.e. the stock is universally loved and extremely overbought, significantly raising odds for an intermediate correction lasting weeks or months.
Target has benefited from the pandemic, capturing retail market share from less-prepared rivals. Skyrocketing GDP in the first half also underpinned performance, with Americans catching up on deferred purchases. The Delta variant has impacted that trajectory but we really don’t know the extent of renewed headwinds. Walmart Inc.’s (WMT) confessional on Tuesday morning could impact that calculation … and the reaction to Wednesday’s report.
Wall Street and Technical Outlook
Wall Street consensus has eased to an ‘Overweight’ rating, based upon 19 ‘Buy’, 2 ‘Overweight’, and 6 ‘Hold’ recommendations. One analyst recommends that shareholders close positions and move to the sidelines. Price targets currently range from a low of $176 to a Street-high $305 while the stock closed Friday more than $3 above the median $258 target. This indicates that Target is fully-valued, raising doubts that earnings will yield a buying opportunity.
Target underperformed between 2015 and 2019, held down by a well-publicized data breach. It broke out in August 2019, entering a powerful uptrend that tested new support successfully in March 2020. The stock has almost tripled in price since that time while carving just one deep pullback. It’s been glued to the top 20-month Bollinger Band throughout 2021 but long term relative strength just hit the most extreme overbought technical reading since 1967.
HOME DEPOT: the largest home improvement retailer in the United States, is expected to report its second-quarter earnings of $4.42 per share, which represents year-over-year growth of about 10% from $4.02 per share seen in the same period a year ago.
The home improvement retailer would post revenue growth of nearly 7% to $40.68 billion. On average, Home Depot has beaten earnings estimates by more than 10% in the last four quarters.
“We are Overweight Home Depot (HD) given its best-in-class nature and structural housing tailwinds beyond N-T disruption from COVID-19. The stock seems attractively valued in the context of a potential 2H’20/2021 economic/housing boom,” noted Simeon Gutman, equity analyst at Morgan Stanley.
WALMART: The Bentonville, Arkansas-based retailer is expected to report its second-quarter earnings of $1.56 per share same as a year ago. However, the multinational retail corporation that operates a chain of hypermarkets’ revenue would decline over 1% to $135.9 billion. On average, the retail giant has beaten earnings estimates by over 17% in the last four quarters.
TARGET: One of the largest North American retailers offering customers both everyday essentials and fashionables, is expected to report its second-quarter earnings of $3.49 per share, which represents year-over-year growth of over 3% from $3.38 per share seen in the same period a year ago.
In the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 69%. The Minneapolis, Minnesota-based company would post year-over-year revenue growth of over 8% to $24.84 billion.
“Walmart (WMT) & Target (TGT) likely to print upside given strong comp sales trends, a healthy consumer bolstered by child tax credits, & one of the best back to school seasons in retail. We prefer TGT given prospects of a greater beat and a lower relative valuation. We also enclose: Cowen’s Target x ULTA analysis, & our online grocery survey highlights WMT’s momentum. Raise TGT PT to $300 & maintain WMT’s $170 PT,” noted Oliver Chen, equity analyst at Cowen.
Kohl’s, the largest department store chain in the United States, is expected to report its second-quarter earnings of $1.17 per share, which represents year-over-year growth of over 565% from a loss of -$0.25 per share seen in the same period a year ago.
Deere & Company, the world’s largest maker of farm equipment, is expected to report its fiscal third-quarter earnings of $4.57 per share, which represents year-over-year growth of over 77% from $2.57 per share seen in the same period a year ago.
In the last four consecutive quarters, on average, the agricultural, construction, and forestry equipment manufacturer has delivered an earnings surprise of over 65%. The company forecasts net income for fiscal 2021 in the range of $5.3 billion to $5.7 billion, up from the previous projection of $4.6 billion to $5 billion, according to ZACKS Research.
“Deere (DE) is one of the highest quality, most defensive names within the broader Machinery universe, given a historically lower cyclicality of Ag Equipment and history of strong management execution. FY21 should mark a tangible acceleration in the NA large ag replacement cycle, as commodity tailwinds are complemented by moderating trade headwinds and improving farmer sentiment,” noted Courtney Yakavonis, equity analyst at Morgan Stanley.
“With mgmt continuing to execute against its 15% mid-cycle operating margin target, we see continued momentum in DE’s margin improvement narrative – representing one of the most attractive idiosyncratic margin improvement narratives in the broader Machinery group.”
Costco Wholesale Corp. (COST) sold off more than 2% on Friday despite beating Q3 2021 top and bottom line estimates by healthy margins. The big box retailer earned $2.75-per-share during the quarter, $0.47 better than expectations, while revenue rose a healthy 21.8% year-over-year to $44.38 billion, more than $500 million higher than consensus. U.S. sales rose 15.2% while e-commerce sales eased off the torrid 2020 pace, rising a still-impressive 38.2%.
Weak Buying Interest
The stock is finally trading in the green for 2021 following a steep first quarter decline that shed nearly 20%. A broad-based rotation out of the COVID-19 beneficiaries and into recovery plays dampened buying interest after last year’s impressive 29% return and it’s been slow to return. Even so, Costco was trading at a 35.5 forward price-to-earnings (P/E) ratio before the report, marking a premium to rivals Walmart Corp. (WMT) and Target Corp. (TGT).
Telsey Advisory Group analyst Joseph Feldman raised his target to $415 on Friday, noting “Costco should remain a share gainer, with its solid sales, high membership renewal rates (110MM total members), and square footage growth of LSD. In FY22, Costco should continue to generate solid EPS growth, driven by a MSD comp, MSD-HSD membership fee income growth, healthy digital growth, and lapping COVID-19 related costs. We maintain our Outperform rating.”
Wall Street and Technical Outlook
Wall Street consensus stands at an ‘Overweight’ rating after last year’s strong performance, underpinned by 19 ‘Buy’, 4 ‘Overweight’, 10 ‘Hold’, and 2 ‘Underweight’ recommendations. Price targets currently range from a low of $249 to a Street-high $415 while the stock closed Friday’s session more than $35 below the median $416 target. This low placement highlights Main Street discomfort with the higher-than-historical valuation.
Costco has been a superior performer for more than a decade, posting a long series of new highs. It broke out above February 2020 resistance at 325 in July and entered a healthy uptrend that posted an all-time high at 393.15 in November. The subsequent decline found support at 307 in March while a V-shaped recovery into May stalled four points below the 2020 peak. Weak accumulation during the uptick has failed to reach prior highs, setting the stage for mixed two-sided price action into the second half.
Target Corp shares scaled its fresh all-time high on Wednesday after the Minneapolis, Minnesota-based retailer reported better-than-expected earnings and revenue in the first quarter.
One of the largest North American retailers that offer customers both everyday essentials and fashionables said its first-quarter adjusted earnings per share rose 525% higher year-on-year to $3.69, beating the Wall Street consensus estimates of $2.26 per share.
The mass-market retail company said its comparable sales grew 22.9% in the first quarter, reflecting comparable store sales growth of 18% and comparable digital sales growth of 50%. Total revenue of $24.2 billion grew 23.4% compared with last year, driven by total sales growth of 23.3% and a 30.4% increase in other revenue. That was higher than the market expectations of $21.51 billion.
For the second quarter of 2021, the company forecasts mid-to-high single-digit growth in comparable sales. The company expects its second-quarter operating margin rate will be well above the second quarter 2019 rate of 7.2%, but likely not as high as last year’s unprecedented 10%.
The Company expects positive single-digit comparable sales growth in the last two quarters of the year and expects its full-year operating margin rate will be well above the 2020 rate of 7.0%, with the potential to reach 8% or somewhat higher.
Following the upbeat results, Target Corp stock rose over 5% to $217.47 on Wednesday.
“Target’s (TGT) EPS of $3.69 handily beat Cowen and Street on comps +22.9%and EBIT margin reaching 9.8%. E-comm +50% on top of +141% & stores fulfilled more than 95% of sales. Raised FY21 outlook suggests TGT well-positioned to comp-the-comp. In Cowen’s view: TGT’s connected consumer & delivery innovation + proprietary product mix that resonates + stores & services = winning formula,” noted Oliver Chen, equity analyst at Cowen.
Target Corp Stock Price Forecast
Twenty analysts who offered stock ratings for Target Corp in the last three months forecast the average price in 12 months of $217.58 with a high forecast of $260.00 and a low forecast of $170.00.
The average price target represents a 0.22% increase from the last price of $217.10. Of those 20 analysts, 16 rated “Buy”, four rated “Hold” while none rated “Sell”, according to Tipranks.
Morgan Stanley gave the stock price forecast of $205 with a high of $260 under a bull scenario and $145 under the worst-case scenario. The firm gave an “Equal-weight” rating on the mass-market retail company’s stock.
“Major beat & major raise. Most confident guidance raise in our coverage as Target Corp (TGT) epitomizes ‘comping the comp.’ 2021 estimates could move to $12-$13, 2022 EPS power key,” noted Simeon Gutman, equity analyst at Morgan Stanley.
“We expect the stock to move meaningfully higher on these results. We suspect 2021 market expectations for EPS power could land in the $12-$13 range on 8% EBIT margins. This implies TGT is trading closer to 16x versus the current ~22x NTM multiple. 16x seems low relative to TGT’s peer set of high-quality Retail leaders.”
Several other analysts have also updated their stock outlook. Target had its stock price forecast lifted by stock analysts at Telsey Advisory Group to $235 from $215. The brokerage presently has an “outperform” rating on the retailer’s stock.
Moreover, Deutsche Bank raised the target price to $225 from $213. Jefferies upped the target price to $210 from $188. JP Morgan increased the target price to $233 from $230. UBS lifted the target price to $210 from $185.
Dow component Walmart Inc. (WMT) reports Q1 2022 earnings ahead of Tuesday’s opening bell, with analysts looking for a profit of $1.21 per-share on a staggering $131.5 billion in revenue. If met, earnings-per-share (EPS) will mark a slight profit increase compared to the same quarter last year. The stock fell nearly 13% in just two weeks after missing Q4 2021 estimates in February and providing weak fiscal year 2022 guidance.
Profits Impacted by Rising Wages
The retail giant has struggled since hitting an all-time high above 150 in December, held down by an exodus out of COVID-19 beneficiaries. Shrinking profit margins have now lifted to the top of investor concerns, with the company shifting more workers to full time employment while raising average hourly wages to over $15 per hour. However, that still doesn’t measure up with competitors Amazon.com Inc. (AMZN) and Target Corp. (TGT), raising odds for further wage pressure.
Recent reports also warn that Walmart is having trouble competing in the highly-lucrative grocery space, struggling to hold onto the top sales slot. According to Vox’s Recode, grocery sales are “losing market share rapidly”, which isn’t surprising because multiple competitors introduced curbside pickup services in 2020 to address the COVID-19 pandemic and have kept those initiatives in place due to their immense popularity.
Wall Street and Technical Outlook
Wall Street consensus remains modestly bullish, with an ‘Overweight’ rating based upon 21 ‘Buy’, 6 ‘Overweight’, 5 ‘Hold’, 1 ‘Underweight’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $120 to a Street-high $180 while the stock closed Friday’s session more than $20 below the median $160 target. This week’s report isn’t likely to change analyst sentiment, given growing inflationary pressure that could weigh on fiscal year results.
Walmart cleared 2000 resistance in the 60s in 2017 and entered an uptrend that carved a series of higher highs and higher lows into December’s all-time high at 153.66. The stock sold off to the 200-day moving average in March and bounced into the second quarter but is still trading in the lower half of the range established by that downdraft. Accumulation has dropped to 2019 levels at the same time, raising odds for mixed price action into the second half of 2021.