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Telsey stock maintains Target Outperform rating

EditorAhmed Abdulazez Abdulkadir
Published 22/05/2024, 14:54
© Reuters.
TGT
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On Wednesday, Telsey Advisory Group maintained its Outperform rating on Target Corporation (NYSE:TGT) with a steady price target of $195.00. The retailer posted first-quarter 2024 results that showcased an in-line comparable sales decline of 3.7%, but a slight miss on earnings per share (EPS), reporting $2.03 against the FactSet consensus of $2.06 and Telsey’s estimate of $2.10.

Despite a 4.8% dip in store comparable sales, Target saw a resurgence in digital sales, which grew by 1.4%, driven by a 9.0% surge in same-day services, including a 13% increase in Drive Up service usage. This digital momentum raised the company's online sales penetration to 18.3%, up from 17.5% the previous year.

The first quarter of 2024 revealed mixed performance across different categories at Target. While discretionary categories faced ongoing pressure, beauty products outperformed, and there was a notable sequential improvement in apparel sales, which jumped approximately 400 basis points from the fourth quarter of 2023.

The operating margin for the quarter saw a slight increase of 4 basis points to 5.3%, supported by a substantial gross margin expansion in the retail segment. The gross margin increase of 142 basis points to 27.7% was attributed to cost improvements, a favorable product mix, and reduced book to physical inventory adjustments, although this was partially balanced by heightened promotional markdowns.

The total selling, general, and administrative (SG&A) expense ratio, however, experienced a 144 basis point deleverage to 23.6%. This was due to a combination of lower sales and increased expenditures on labor and marketing.

Nevertheless, Target reported a healthy inventory status at the end of the first quarter, with a 7.0% decrease compared to a 3.1% drop in sales. This position is anticipated to bolster profitability in the upcoming periods.

InvestingPro Insights

Target Corporation's (NYSE:TGT) resilience is highlighted by its ability to sustain dividend growth, with a commendable track record of increasing dividends for over five decades. This consistency is a testament to the company's financial stability and commitment to shareholder returns. According to InvestingPro Tips, Target is not only a prominent player in the Consumer Staples Distribution & Retail industry but is also trading at a low P/E ratio relative to near-term earnings growth, which could indicate an attractive valuation for investors seeking growth at a reasonable price.

Delving into the InvestingPro Data, Target boasts a market capitalization of $72.07 billion and maintains a P/E ratio of 17.36, which aligns with its earnings report. Although revenue showed a slight decline over the last twelve months as of Q4 2024, with a -1.57% change, the company's gross profit margin remains strong at 27.63%. This financial health is further underscored by a robust dividend yield of 2.82%, reinforcing the company's investor-friendly approach. Notably, Target's share price is currently at 85.72% of its 52-week high, and analysts have set a fair value target at $190, which is higher than the InvestingPro fair value estimate of $169.14, suggesting room for potential upside.

For readers looking to gain deeper investment insights, there are additional InvestingPro Tips available that could further inform investment decisions. By using the coupon code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking access to these valuable tips and metrics.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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