Facts you should know before betting on it

by Junna Base November 8, 2024

Goal (TGT) was recently on Zacks.com’s list of most wanted stocks. Therefore, you may want to consider some of the key factors that could influence the stock’s performance in the near future.

Shares of this retailer have returned -0.2% over the past month, while the Zacks S&P 500 Composite has returned +0.7%. The Zacks Retail – Discount Stores industry, which includes Target, has lost 0.3% in the period. The crucial question now is: Where could the share develop in the short term?

Although media reports or rumors about a significant change in a company’s business prospects usually cause the stock to trend and result in an immediate price change, there are always certain fundamental factors that ultimately determine the buy-and-hold decision .

Here at Zacks, we emphasize evaluating the change in a company’s future earnings outlook over anything else. This is because we believe that the present value of future earnings streams determines the fair value of the company’s shares.

Our analysis is essentially based on how sell-side analysts covering the stock revise their earnings estimates to take into account the latest business trends. When a company’s earnings estimates rise, the fair value of its shares also rises. And when a stock’s fair value is higher than its current market price, investors tend to buy the stock, resulting in an increase in the stock price. Because of this, empirical studies suggest a strong correlation between trends in earnings estimate revisions and near-term stock movements.

Target is expected to report earnings of $2.28 per share for the current quarter, representing a year-over-year change of +8.6%. Over the past 30 days, the Zacks Consensus Estimate has moved +0.1%.

For the current fiscal year, the consensus earnings estimate of $9.54 suggests a year-over-year change of +6.7%. Over the past 30 days, this estimate has remained unchanged.

For the next fiscal year, the consensus earnings estimate of $10.56 represents a +10.8% change from what Target was expected to report a year ago. Last month, the estimate remained unchanged.

Our proprietary stock ranking tool, the Zacks Rank, has a strong, outside-audited track record of success and provides a more meaningful picture of a stock’s near-term price performance by effectively leveraging the power of earnings estimate revisions. Based on the magnitude of the recent consensus estimate change as well as three other factors related to earnings estimates, Zacks ranks Target at #2 (Buy).

The following chart shows the evolution of the company’s forecast 12-month EPS estimate:

While a company’s earnings growth is arguably the best indicator of its financial health, not much happens if it can’t grow revenue. It is almost impossible for a company to increase its profits without increasing its sales over long periods of time. Therefore, understanding a company’s potential revenue growth is crucial.

For Target, the current quarter consensus revenue estimate of $25.97 billion suggests a year-over-year change of +2.2%. For the current and next fiscal years, estimates of $106.82 billion and $110.27 billion suggest changes of -0.6% and +3.2%, respectively.

Target reported sales of $25.45 billion in its most recent reported quarter, a change of +2.7% year-over-year. Earnings per share for the same period were $2.57, compared to $1.80 a year ago.

Compared to the Zacks Consensus Estimate of $25.23 billion, reported revenues represented a surprise of +0.89%. The EPS surprise was +18.98%.

Over the past four quarters, Target has surpassed consensus EPS estimates three times. The company topped consensus revenue estimates each time during that period.

No investment decision can be efficient without considering a stock’s valuation. Whether the current price of a stock accurately reflects the intrinsic value of the underlying business and the company’s growth prospects is a key factor in future price performance.

When comparing the current values of a company’s valuation multiples, such as: B. Price-earnings ratio (P/E), price-sales ratio (P/S) and price-cash flow (P/CF), with its own values. Historical values can be used to determine whether the stock is fair, overvalued or undervalued is. Comparing the company with its competitors based on these parameters gives a good impression of the appropriateness of the share price.

The Zacks Value Style Score (part of the Zacks Style Scores system), which considers both traditional and unconventional valuation metrics to rank stocks from A to F (an An is better than a B; a B is better than a C); etc.) is very helpful in determining whether a stock is overvalued, correctly valued or temporarily undervalued.

Target receives an “A” grade in this regard, indicating that it is trading at a discount to its peers. Click here to see the values of some of the evaluation metrics that determined this grade.

The facts discussed here and much other information on Zacks.com could help determine whether the market excitement surrounding Target is worth paying attention to. However, its Zacks Rank #2 suggests it could outperform the broader market in the near term.

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