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On Wednesday, Telsey Advisory Group adjusted its outlook on Target Corporation (NYSE:TGT) shares, raising the price target to $195 from the previous $190 while maintaining an Outperform rating on the stock.
The revision followed Target's announcement of its second-quarter 2024 earnings, which surpassed expectations with a reported EPS of $2.57. This figure notably exceeded both Telsey's estimate of $2.19 and the FactSet consensus of $2.18.
Target's second-quarter performance highlighted a return to sales and profit growth, with comparable store sales (comp) increasing by 2.0%, which was above Telsey's prediction of 1.5% and the FactSet projection of 1.1%.
The retailer experienced a robust traffic growth of 3.0%, although this was partially offset by a 0.9% decrease in ticket size. The store comp saw a modest rise of 0.7%, while digital sales comp growth was significant at 8.7%, bolstered by double-digit growth in same-day services.
The company's earnings report also revealed improvements across various product categories. Beauty products saw high single-digit growth, while apparel, food, and essentials each reported low single-digit increases. On the other hand, home and hardlines categories showed negative trends, which were nonetheless better than in previous periods.
Target's operating margin for the quarter expanded by 160 basis points to reach 6.4%, outperforming Telsey's expectation of 5.5%. This improvement was driven by a retail gross margin expansion of 185 basis points to 28.9%, reflecting merchandise cost improvements, a reduction in shrinkage, and a favorable product mix. These positive factors helped to mitigate the impact of increased promotions and higher digital fulfillment and supply chain costs.
Overall, the second quarter of 2024 saw Target's EBIT dollars surge by approximately 37% to $1.6 billion. This strong financial performance and the raised guidance for the 2024 EPS have contributed to the analyst's positive outlook on the company's stock.
InvestingPro Insights
Target Corporation's (NYSE:TGT) recent earnings report has caught the attention of investors and analysts alike, with the company's performance exceeding expectations. In light of this, InvestingPro provides valuable insights that can further inform investment decisions. Target has demonstrated a consistent commitment to shareholder returns, having raised its dividend for 54 consecutive years, which is a testament to its financial resilience and management's confidence in the company's future. This is particularly noteworthy as it aligns with the company's recent strong earnings report.
InvestingPro data reinforces the positive sentiment, highlighting Target's robust market capitalization of $73.78 billion and a favorable P/E ratio of 17.9, which is attractive when paired with its near-term earnings growth. The company's PEG ratio, standing at 0.35 for the last twelve months as of Q1 2025, suggests that the stock may be undervalued relative to its earnings growth prospects. Additionally, Target's dividend yield of 3.13% as of the end of 2024 offers a compelling reason for income-focused investors to consider the stock.
For those seeking a deeper analysis, InvestingPro features additional tips on Target, including its status as a prominent player in the Consumer Staples Distribution & Retail industry and its moderate level of debt. These factors, combined with the analysts' prediction that the company will remain profitable this year, paint a comprehensive picture of Target's financial health and future potential. To explore further, investors can find more InvestingPro Tips by visiting https://www.investing.com/pro/TGT, where a total of 8 tips are listed to guide their investment strategy.
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