With shares trading sharply higher as of late, you may think you’ve missed the boat with Target (NYSE:TGT) stock. But even at around $140 per share, shares remain a solid buy. How so? For starters, the novel coronavirus remains a tailwind, not a headwind, for the retailer.
Sure, this has been at play since March. The big-box giant, along with its peers like Walmart (NYSE:WMT) and Costco (NASDAQ:COST), saw strong business as households stockpiled goods ahead of lockdowns. Yet, even as the lockdowns have ended, demand remains strong for names in this space.
As the outbreak continues to linger, we are still largely in the “stay-at-home economy.” It’s still tough times for mall-based retailers and restaurants. But for big-box stores? As long as millions remain stuck at home for work and leisure, I don’t see this tailwind ending just yet.
Add in Target’s successful pivot to a omni-channel model (in-store and online), and it’s no surprise this remains one of the best retailer stocks out there. With the potential for blockbuster quarterly results, shares remain a great buying opportunity.
TGT Stock and Earnings
With earnings out Aug 19, what can we expect? Last quarter, the pandemic took its toll on the company’s bottom line. The company beat on sales for the quarter ending April 30, 2020. But, earnings for that quarter (59 cents per share) fell short of analyst estimates of 68 cents per share.
Yet, a silver lining from last quarter’s results was the company’s digital sales growth. E-commerce sales for Target grew 141% during that period. And, given that only part of the quarter was during the pandemic, we should expect to see similar strong numbers for the quarter ending July 31.
How about in-store sales? Sure, the first few months of this recent quarter were during the lockdown period. But, given that big box stores thrived during this time, we should see solid results for the top line.
Yet, will this translate into strong earnings? Analyst consensus calls for earnings around $1.62 per share for the quarter. And as these estimates have trended higher in the past month, it makes sense shares have rallied higher ahead of what could be blockbuster earnings.
But, there’s more to the bull case for TGT stock than this near-term earnings catalyst. Beyond today’s pandemic tailwinds, there’s plenty in the tank to send shares higher over the next few years.
Strong Prospects Post-Pandemic
Right now, big-box stores are one of the few games in town. That is to say, with many still concerned about visiting malls, the big box chains have the edge when it comes to bricks-and-mortar retail. But, what’s going to happen post-pandemic?
Simply put, a “return to normal” isn’t going to take the wind out of TGT stock. If anything, we could see even greater levels of earnings. With the pandemic accelerating e-commerce, the retailer benefits thanks to its omnichannel sales strategy.
And, if things are back to where they were pre-outbreak, the brick-and-mortar side should see a boost as well. In short, there are good reasons why earnings could remain strong going into the next fiscal year (ending Jan 2022).
But, what about valuation? With shares trading for 26.6 times projected FY21 (ending Jan 2021) earnings, I can see why you may be concerned. Yet, this rich valuation is on par with rival Walmart, which sports basically the same forward multiple (26.1).
Yet, while some analysts see Walmart right now as “priced for perfection,” the situation with TGT stock may be different. Given the company’s potential to knock earnings out of the park over the coming quarters, coupled with greater levels of growth than its larger rival, one could argue valuation has yet to be maxed out.
Granted, I don’t see substantial multiple expansion in the cards. But earnings growth could drive a slight bump-up in forward valuation. In turn, this could mean strong returns for shares over the next year.
Underlying Strength Means Shares Remain a Solid Buy
So, what’s the verdict with Target stock? Yes, after bouncing back more than 50% off its pandemic sell-off lows, much of the easy money may have already been made. But as continuing trends remain this retailer’s friend, strong near-term results and underlying strength could send shares to even higher prices.
And even post-pandemic, this omnichannel retailer continues to have solid prospects. Between the accelerating rise of e-commerce, coupled with brick-and-mortar traffic coming back once the outbreak is over, there’s good reason why this company will probably crush earnings over the next few quarters.
With this in mind, TGT stock remains a buy, and a screaming buy, on any pullback.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt held a position in COST stock.