Earnings season may have wound down, but there are still a few big names reporting. Yesterday, both Lowe’s (LOW) and Target (TGT) stunned the prognosticators with quarterly earnings well above the expectations, and both stocks spiked sharply as a result. Let’s dive in, see what they reported, and find out what Wall Street’s top analysts have to say about their earnings and their outlook.
Lowe’s Companies, Inc. (LOW)
Lowe’s has been struggling in recent years, suffering from fluctuations in the housing markets and in the costs of raw materials as well as from direct competition with its larger rival Home Depot (HD). Marvin Ellison, who as a Home Depot exec had been part of that chain’s turnaround, joined Lowe’s as CEO last year on a mandate to lead another turnaround. Ellison took a ground-level approach, going to Lowe’s stores personally to find out what was needed at the small scale. He also began shuttering unprofitable locations.
At least in the short term, Ellison’s work is paying off. For Q2, Lowe’s reported EPS of $2.15, 7% higher than the forecast. Revenues came in at $20.99 billion, just above the $20.94 billion expected. Company-wide same-store sales were up 2.3%, well above the 1.9% estimate, and were even better in the US market, where same-store sales gained 3.2%. The US number was especially good, as it was higher than Home Depot’s equivalent.
During the earnings conference call, Ellison said, “We capitalized on spring demand, strong holiday event execution and growth in paint and our pro business to deliver strong second quarter results. Despite lumber deflation and difficult weather, we are pleased that we delivered positive comparable sales in all 15 geographic regions of the U.S.”
Investors were definitely thrilled, as LOW shares jumped from $97.87 to $108 during the trading session.
Top Wall Street analysts were quick to weigh in on Lowe's success. Baird’s Peter Benedict described the results as “encouraging,” and pointed out the company’s excellent gross margins. He added, “The print should drive shares as comp momentum continues to showcase early traction in engaging customers.” Benedict already had a Buy rating on LOW; he reiterated that and set a price target of $127. His target suggests an upside of 18%.
KeyBanc analyst Bradley Thomas gave Lowe’s a $125 price target, with an upside of 15%, after the earnings. He said, “Sales and EPS were better than expected, demonstrating improvement in gross margin issues faced in Q1 while building new momentum in its turnaround under new management. Lowe's remains a self-help story, under the leadership of new CEO Marvin Ellison. Look for numerous initiatives to ramp through 2020.”
The analyst consensus gives LOW shares a Moderate Buy rating. After yesterday’s spike, LOW is trading for $108. The $116 average price target indicates an upside of 7.7%.
Target Corporation (TGT)
In some ways, Target’s Q2 earnings were even better. EPS was $1.82, an impressive 12.3% more than the $1.62 forecast, and quarterly revenues were $18.4 billion, a full $100 million higher than expected. Even same-store growth clobbered the estimates, coming in a 3.4% against the expected 3%.
Looking ahead, company management guided to FY2019 earnings of $5.90 to $6.20 per share, well above the analysts’ expectation of $5.94. The FY EPS guidance was also a big step up from Target’s own previous estimate.
Investors were duly impressed by the earnings numbers. The report came out before the opening bell on Wednesday, and in the ensuing trading session TGT saw its single best one-day gains ever and an all-time high share price. The quarterly beat propelled the stock from $85.53 to $108 in a single session, a gain of 22.47%.
CEO Brian Cornell, in his statement on the earnings, said, “We’re increasing Target’s relevancy and deepening the relationship between our guests and our brand. Traffic and sales continue to grow while our earnings per share reached an all-time high, driven by the strength of our team’s execution and their focus on delivering for our guests.” He added that the quarterly gains were driven by apparel and essentials.
Writing for KeyBanc, top analyst Edward Yruma bumped his price target on TGT up by 9% to $120. He said, “The company's Q2 performance points to share gains driven by merchandising and store experience, as well as ongoing improvements to e-commerce. Momentum will continue into the second half of the year.” Yruma’s price target implies an upside of 14% to TGT shares.
Taking an even more optimistic note, Citigroup’s Paul Lejuez upgraded TGT on the earnings news, moving his rating from Hold to Buy. He wrote, “We want to catch the next 20% move up, which will occur as the company continues to prove it is a winner in the current retail landscape Target's investments are paying off in strong comps and positive store traffic, which will drive higher free cash flow and improving ROIC.” Lejuez’ $130 price target suggests a solid 24% upside for the stock.
Overall, TGT get a Strong Buy from the analyst consensus, based on 12 recent buy ratings and only 3 holds. The stock has an average price target of $108, but since the earnings report the share price is rising swiftly and the upside is only 2.4%. Expect analysts to adjust their price targets in coming weeks if TGT continues to rally.