Why Are Target (TGT) Shares Soaring Today

Kayode Omotosho /
2024/03/05 11:41 am EST

What Happened:

Shares of general merchandise retailer Target (NYSE:TGT) jumped 12.1% in the morning session after the company reported fourth quarter results which blew past analysts' gross margin and operating profit expectations, leading to EPS outperformance versus Wall Street estimates. 

On the other hand, its earnings forecast for the next quarter and the full year ending January 2025 missed analysts' expectations. Zooming out, this was still a decent, albeit mixed, quarter. 

Separately, Target announced a paid subscription program that could potentially boost revenue growth in the coming quarters. Target Circle 360, which will start in April 2024, offers perks for certain tiers, including unlimited free same-day delivery and free two-day shipping. This move follows a trend among retailers like Amazon and Walmart to use subscription fees to boost sales. Notably, Target already boasts over 100 million members on its free Target plan, indicating a significant potential market for the paid tier.

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What is the market telling us:

Target's shares are somewhat volatile and over the last year have had 1 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 4 months ago, when the stock gained 14.8% on the news that 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.

Target is up 16.9% since the beginning of the year, and at $167.38 per share it is trading close to its 52-week high of $169.58 from April 2023. Investors who bought $1,000 worth of Target's shares 5 years ago would now be looking at an investment worth $2,202.

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