Target Stock Is Up ~21% since Q1 Earnings: What’s Ahead?

Target (TGT) is up about 21% since the company posted stellar first-quarter results on May 22. Target’s continued growth in traffic both in store as well as online supported its comparable sales, and in turn, its stock price. Besides robust comparable sales, Target managed to expand its operating margin during the last reported quarter, which is encouraging given the pressure on margins from investments in growth and higher digital fulfillment charges.

Moreover, Target’s bottom line has grown at an average rate of 16% in the past five quarters. Meanwhile, it rose 15.9% during the last reported quarter and came in ahead of analysts’ expectation.

Besides a strong financial performance, Target’s lower valuation multiple compared to its peers further boosted its stock. Target stock is up 31.4% on a YTD (year-to-date) basis as of June 7. During the same period, Costco (COST) and Walmart (WMT) rose 25.7% and 13.9%, respectively.

These retailers are benefiting from their continued comparable sales growth, improving e-commerce margins, and better-than-expected performance on the bottom-line front.

We expect Target to sustain its sales and earnings growth momentum in the coming quarters. The company’s e-commerce expansion and stores remodeling are expected to support its sales. Meanwhile, growth in comps and share repurchases are likely to drive its earnings.

However, its stock reflects the positives, which indicates that the upside could be limited. A pullback in Target stock could be an opportunity to become constructive on it.