Target TGT stock has jumped around 15% since its blowout Q2 financial results on August 19 to sit right near its new highs. The retailer showcased its ability to shine during the pandemic, as it expands its e-commerce offerings.
The Quick Coronavirus Recap…
Target’s Q1 revenue jumped 11.3%, with comparable sales up 10.8% for the three-month period ended on May 2. The Minneapolis-based firm followed its strong first quarter with 25% revenue growth in the second quarter. Meanwhile, TGT’s Q2 comparable sales surged by a company-record 24.3%, with digital comps up 195%.
More specifically, TGT’s same-day services, which includes delivery and curbside pick up, soared 273%. Target’s adjusted EPS figure climbed 86% to crush estimates, with its operating margin up from 7% in Q2 FY19 to 10%. The higher margin was helped along by solid growth from all of five merchandise categories, as discretionary sections such as apparel returned to growth.
Target’s beefed-up digital offerings, delivery, curbside pick up, and other future-looking moves have captivated Wall Street and they are vital now and going forward in the Amazon AMZN age. And obviously its digital growth is impressive, but Target also posted one of its strongest quarters of in-store comps, up nearly 11%.
Target’s ability to grow both in stores and online is a great sign, since e-commerce accounted for just 12% of total U.S. retail sales in Q1. In another sign of strength, Target announced in early June that it raised its quarterly dividend by 3% to $0.68 per share. Target’s 1.75% dividend yield tops Walmart WMT and the S&P 500’s average.
Investors can also see that TGT shares have surged 175% in the last three years to top its rival and its industry. Despite the climb, Target still trades at a discount to its peer group—which includes Costco COST, Dollar General DG, and others—as it has for years.
Looking ahead, Target’s top and bottom line growth is expected to slow down, with the worst days of the coronavirus hopefully in the rearview. The company will then come up against hard-to-compare periods in fiscal 2021.
That said, Target’s longer-term earnings revisions have climbed since its report to help it earn a Zacks Rank #1 (Strong Buy) right now. TGT also holds “B” grades for Growth and Momentum in our Style Scores system and it is part of a highly-ranked Zacks industry.
Target appears worth considering as a longer-term investment, even though it might be prudent to wait for things to cool down a bit. It is, however, worth remembering that Wall Street has been diving into stocks that can grow during the broader economic downturn.
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