Why Target Stock Rose 17% in November

So far, Target (TGT) shares have generated significant returns this year. The stock has risen about 89% year-to-date as of November 29. Notably, the stock rose nearly 17% in November.

What did Target stock rise?

The stellar growth in Target stock is due to its back-to-back impressive financial performance. The company’s comps have been growing at a robust pace. Meanwhile, the margins have returned to growth. The company’s earnings have increased at a double-digit rate over the previous seven consecutive quarters.

Target raised its fiscal earnings outlook twice this year, which boosts investors’ confidence in the stock.

Walmart (WMT) and Costco (COST) stocks have also outperformed the broader markets this year. Walmart and Costco shares have risen 27.8% and 47.2%, respectively, this year.

Growth catalysts

Target stock benefits from its all-round performance. The company’s comps growth has been impressive over the past several quarters. For instance, the company’s comps rose 4.5% during the last reported quarter. The remarkable growth comes on top of a 5.1% increase the previous year.

On average, Target’s comps have increased 4.5% in the last eight quarters. Meanwhile, the company’s comparable sales have risen about 10% in the previous two years.

Target’s digital transformation, including same-day delivery through Shipt, Drive-Up, and in-store pickup, has been driving its traffic. Launching exclusive brands and competitive pricing also supported the company’s comps growth.

Target’s margins continue to expand due to a steady increase in comps and a favorable sales mix. Cost-saving initiatives and smart promotions also support the margins.

Strong sales growth and margin expansion continue to drive strong double-digit growth in Target’s bottom line. Share repurchases also cushion the company’s bottom line.

On average, Target’s bottom line has increased by more than 18% in the last seven quarters. Notably, the company’s adjusted EPS beat analysts’ estimates in the previous four quarters.

Higher earnings outlook

The company’s impressive financials led management to increase its fiscal earnings outlook twice. Previously, Target boosted its fiscal EPS outlook by $0.15. Management raised its 2019 earnings outlook. During the third-quarter conference call, Target raised its EPS outlook to $6.25–$6.45 compared to the previous guidance of $5.90–$6.20.

Target expects its comps growth to be 3%–4% in the fourth quarter. Notably, the company faces tough YoY (year-over-year) comparisons on the comps front. In the previous year, the company’s comps rose 5.3%.

Target stock could benefit from holiday sales

We think that Target could be one of the few retailers to gain from higher sales during the holiday season. A healthy macro backdrop, including a low unemployment rate, higher wages, and lower interest rates, will likely to boost retail sales. Meanwhile, the company is positioned well.

The company’s digital initiatives, like free shipping on thousands of items and same-day delivery, will likely its drive traffic this holiday. Meanwhile, a focus on merchandising, including expanded assortments and compelling promotions and deals, should support comps growth.

We think that Target stock will likely gain from continued momentum in its comps. Meanwhile, the company’s inventory and delivery capabilities should support higher sales during the holiday season.