Target Falls After Q3 Print: Should Investors Buy The Dip?

Target Corporation TGT reported Tuesday with third-quarter results that disappointed investors and sent the stock tumbling. Now that shares are on track for their roughest patch since the financial crisis, should investors be concerned about more downside ahead or buy the dip? 

The Analysts

Edward Jones' Brian Yarbrough maintains a Hold rating on Target.

KeyBanc Capital Markets' Edward Yruma maintains at Overweight, unchanged $110 price target.

Tigress Financial Partners' Ivan Feinseth discussed Target's stock in his daily newsletter.

Target CEO: No Slowdown In Spending

Following Target's Q3 report, CEO Brian Cornell hosted a conference call to discuss the company's performance and outlook. The executive said there is "no indicator" to support a slowdown in consumer spending ahead of the holiday season, CNBC reported.

Edward Jones: Negatives Balanced By Positives

Exiting Target's quarterly report, it's evident the company faces ongoing competitive pressure, Yarbrough said in a note.

Online retailers are able to beat Target on price, while larger physical retailers like Walmart Inc WMT are becoming more aggressive on in-store pricing, he said.

A two-front battle will likely pressure Target's profit margins and by default limit its future earnings growth profile, the analyst said. 

Despite heightened competitive pressure, Target's margin-rich private label brands remain popular and make the company stand out, Yarbrough said. Coupled with an improving grocery selection; a focus on natural and organic items; and a strong balance sheet, the company's strengths balance the ongoing concerns, he said. 

Target shares are "fairly valued" at its current multiple of around 15 times estimated 2018 EPS, which also happens to be in-line with the five-year average multiple, according to Edward Jones. 

Related Link: Analysts React To Target's Q2: 'This Is As Good As It Is Going To Get'

KeyBanc: 'Solid' Report

Target's Q3 was "solid," as same-store sales growth of 5.1 percent was short of expectations but still among the highest in the retail group, Yruma said in a note. Earnings of $1.09 per share in Q3 represent a record high, and the 49-percent growth in Target's digital business is impressive, he said. 

While margins did fall 90 basis points in the quarter, Target is committed to stabilizing any further declines through in-store productivity improvements and merchandising initiatives, the analyst said. While this could prove to be a challenging task, it is overshadowed by the stock's compelling valuation of just 12.1 times 2019 estimated P/E, according to KeyBanc. 

Tigress: Buying Opportunity

Target's sell-off Tuesday represents a buying opportunity for investors ahead of what could prove to be strong holiday performance, Feinseth said in his newsletter. The company continues to offer consumers a differentiated and unique offering, while the Target Red Card and loyalty program "connect well" with the customer base, he said.

Tigress expects "significant upside" ahead. 

Price Action

Target shares were down 0.12 percent at $68.95 at the time of publication Wednesday. 

Related Link: Cowen: 5 Reasons Target Will Outperform

Photo by Mike Kalasnik/Wikimedia.