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Inside Target's Strong 2Q17 and Rising Stock

PART:
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Part 2
Inside Target's Strong 2Q17 and Rising Stock PART 2 OF 6

Target Surpasses 2Q17 EPS Estimate, Guides High

EPS versus consensus

Target (TGT) reported better-than-expected fiscal 2Q17 (ended July 29, 2017) results on August 16, 2017. Target’s adjusted EPS (earnings per share) of $1.23 surpassed the analysts’ estimate of $1.19, thanks to improved store traffic and strong digital sales.

However, the company’s EPS remained flat when compared with the previous year, as leverage from improved sales were offset by higher costs. On a reported basis, TGT’s bottom line rose 14.2% to $1.22.

Target Surpasses 2Q17 EPS Estimate, Guides High

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Factors that impacted 2Q EPS

Target made a strong rebound in fiscal 2Q17 as the company’s efforts aimed at accelerating top- and bottom-line growth is slowly gaining traction. Positive comps (comparable same-store sales) on the back of improved store traffic and strong digital sales boosted the bottom line beat, and the decline in interest expenses and a lower effective tax rate helped EPS. However, higher digital fulfillment costs and increased compensation expenses remained a drag.

By comparison, Wal-Mart Stores’ (WMT) bottom-line results are also expected to benefit from higher sales, mainly in its US (SPY) segment. But Walmart’s increased business investments are likely to restrict EPS growth rate.

Notably, Costco Wholesale (COST) is expected to report healthy EPS growth in its upcoming quarter, reflecting higher comps and increased cost savings.

Outlook

Given its upbeat fiscal 2Q17 performance and healthy trends in its product categories, TGT’s management has raised its fiscal 2017 EPS outlook. Target now projects its fiscal 2017 adjusted EPS to be in the range of $4.34–$4.54, up from its previous guidance of $3.80–$4.20.

For fiscal 3Q17, TGT’s adjusted EPS is expected to be in the range of $0.75–$0.95. TGT’s management noted that its bottom line should benefit from a lower tax rate in coming quarters.

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