Baird Sees Entry Point In Target Ahead Of Q2 Print

Target Corporation TGT shares are higher by more than 25% since the start of 2019, and the stock still offers investors a compelling entry point ahead of the second-quarter print Aug. 21, according to Baird.

The Analyst

Peter Benedict maintained an Outperform rating on Target with an unchanged $90 price target. The stock is also included in Baird's high conviction "Fresh Pick" list.

The Thesis

Target's second-quarter comps are likely to decelerate, as it is up against a difficult comparison to last year, when it saw outsized share gains in the toy and baby segments, Benedict said in a Monday note. (See his track record here.)

Nevertheless, the Street's 3% comp estimate and EPS estimate of $1.62 are realistic, the analyst said. The company is likely to continue benefiting in the quarter from ongoing improvements in the shopping experience, exclusive brand launches and new fulfillment options, he said.

Target's operating margins are likely to improve on a year-over-year basis in the second quarter from cost saving initiatives and the adoption of store-based fulfillment options, Benedict said. This could further damage the bears who subscribe to Target's "profitless growth" thesis, he said.

Beyond the second quarter, Target's full-year 2019 EPS guidance range of $5.75 to $6.05 "looks secure" even against tariffs that are likely to come online in the near-term, the analyst said.

Target's stock is trading at 13.5 times NTM EPS, which is an 18% discount to the S&P 500 and doesn't value profitable growth this year along with a "compelling suite" of new fulfillment options, according to Baird.