Shares of Target (TGT) have been strong performers lately, with the stock up 10.6% over the past month. The stock hit a new 52-week high of $135.11 in the previous session. Target has gained 5% since the start of the year compared to the 28.8% move for the Zacks Retail-Wholesale sector and the 5.8% return for the Zacks Retail - Discount Stores industry.
What's Driving the Outperformance?
The stock has a great record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on May 20, 2020, Target reported EPS of $0.59 versus consensus estimate of $0.46.
For the current fiscal year, Target is expected to post earnings of $5.03 per share on $82.95 billion in revenues. This represents a -21.2% change in EPS on a 6.2% change in revenues. For the next fiscal year, the company is expected to earn $6.74 per share on $84.17 billion in revenues. This represents a year-over-year change of 33.77% and 1.46%, respectively.
Target may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.
On this front, we can look at the Zacks Style Scores, as they provide investors with an additional way to sort through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.
Target has a Value Score of B. The stock's Growth and Momentum Scores are B and B, respectively, giving the company a VGM Score of B.
In terms of its value breakdown, the stock currently trades at 26.7X current fiscal year EPS estimates. On a trailing cash flow basis, the stock currently trades at 11.6X versus its peer group's average of 15.7X. Additionally, the stock has a PEG ratio of 4.42. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.
We also need to look at the Zacks Rank for the stock, as this supersedes any trend on the style score front. Fortunately, Target currently has a Zacks Rank of #2 (Buy) thanks to rising earnings estimates.
Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Target passes the test. Thus, it seems as though Target shares could have potential in the weeks and months to come.
How Does Target Stack Up to the Competition?
Shares of Target have been moving higher, and the company still appears to be a decent choice, but what about the rest of the industry? Some of its industry peers are also impressive, including Target (TGT), Dollar General (DG), and OReilly Automotive (ORLY), all of which currently have a Zacks Rank of at least #2 and a VGM Score of at least B, making them well-rounded choices.
However, it is worth noting that the Zacks Industry Rank for this group is in the bottom half of the ranking, so it isn't all good news for Target. Still, the fundamentals for Target are promising, and it still has potential despite being at a 52-week high.
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