Why Are Target (TGT) Shares Soaring Today

Petr Huřťák /
2023/11/15 1:07 pm EST

What Happened:

Shares of general merchandise retailer Target (NYSE:TGT) jumped 14.8% in the morning session after the company reported third quarter results that blew past analysts' EPS expectations, driven by a small beat on revenue, better profitability, and a lower-than-expected tax rate. While same-store sales declined, the rate exceeded analysts' expectations. The company also generated healthy operating cash flows and repositioned its inventory into a healthier position. Next quarter's EPS guidance was slightly ahead of Consensus. Zooming out, we think this was an impressive quarter that should please shareholders, especially in light of some troubling consumer commentary from other companies.

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What is the market telling us:

Target's shares are somewhat volatile and over the last year have had 3 moves greater than 5%. But moves this big are very rare even for Target and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The biggest move we wrote about over the last year was 3 months ago, when the stock gained 9.9% on the news that the company reported second quarter results, with earnings per share exceeding Wall Street's estimates by an impressive 21%, driven by meaningful gross and operating margin expansion. Therefore, it was not surprising to see free cash flow come in strong, flipping from negative to positive when compared to the same quarter last year, and well ahead of expectations. 

On the other hand, revenue came in below expectations, and the company expects same-store sales to decline more than expected, causing it to lower its full-year revenue and EPS guidance. Management added that "As we move into the Fall, the team is gearing up for the biggest seasons of the year, with a focus on continuing to serve our guests with newness throughout our assortment. At the same time, we continue to take a cautious approach to planning our business, and have therefore adjusted our financial guidance in anticipation of continued near-term challenges on the topline. This approach, along with the long-term investments we're making in our business and strategy, position us to deliver sustainable, profitable growth in the years ahead." 

Overall, the results were mixed, with the company likely drawing positive reactions from the market due to the improved profits and cash flows as well as management's encouraging guidance regarding future bottom-line growth.

Target is down 14.8% since the beginning of the year, and at $129.37 per share it is trading 28.5% below its 52-week high of $181.02 from February 2023. Investors who bought $1,000 worth of Target's shares 5 years ago would now be looking at an investment worth $1,600.

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