Strong fundamentals drove the stock
So far, Target (TGT) stock has outperformed the broader markets and its peers in 2018. Strong comps growth led by a record rise in traffic, expansion of digital fulfillment options, and benefits from lower taxes following the tax reforms are driving Target’s top and bottom-line growth. Given the company’s strong performance in the first half of 2018, the stock has increased 34.1% on a YTD (year-to-date) basis as of August 31.
Target stock trades at 16.2x the fiscal 2018 estimated EPS of $5.40. Given the projected growth of 14.6% and a dividend yield of 2.9%, Target shares look fairly priced. However, the stock is trading at 15.5x the fiscal 2019 EPS of 5.63, which looks expensive based on the projected growth rate of 4.3% during that period.
Target will likely sustain the sales and earnings growth momentum in the second half of fiscal 2018. The improving macro backdrop, money and time-saving offerings, and holiday season are expected to drive the company’s financials. However, Target’s growth rate will likely decelerate significantly in fiscal 2019 due to tough year-over-year comps.