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

Retailer Target Corporation TGT reported a top-and-bottom-line second-quarter earnings beat Wednesday morning. Here's a roundup of some of the Street's initial commentary.

The Analysts

Edward Jones' Brian Yarbrough maintained a Hold rating on Target with an unchanged $88 price target in a research report.

Jan Kniffen of J. Rogers Kniffen discussed Target's earnings on CNBC Wednesday morning.

Edward Jones: Concerns Remain

Target's same-store sales growth of 6.5 percent in the second quarter came in above the 4.1 percent expected and was driven by higher traffic in stores and higher online sales, Yarbrough said in a note.

Yet the growth online sales came at the expense of profit margins, which fell on a year-over-year basis. The gross margin concerns are likely to remain, as Target must continuously invest to compete in the retail landscape, the analyst said. 

Target investors should be concerned with rival retailer Walmart Inc WMT, which is becoming more aggressive on pricing, Yarbrough said. As a result, Target may find it necessary to lower its prices, limiting future earnings growth. 

Target boosted its dividend for the 47th consecutive quarter, but the increase is slightly short of the 5-percent long-term growth rate expected, the analyst said. 

Ongoing fierce competition in the retail space coupled with concerns over profit growth imply that Target stock is fairly valued, in Edward Jones' view. The shares are trading at around 15 times 2018 earnings, roughly in-line with the five-year historical average of 15.5 times.

Kniffen: Print Matched Expectations

Heading into Target's earnings report, the retailer needed to show a 40-percent growth rate in the online business, and the company delivered with a 41-percent growth rate, Kniffen said during CNBC's "Squawk Box" segment. Hitting the 40-percent number is crucial to signal Target can compete with other large rivals, he said. 

Aside from the online business, Target's earnings report is nothing short of fabulous, Kniffen said. Encouragingly, the Target of today looks much like the Target of 2006, when it was the best retailer in the space, he said. 

"This is as good as it is going to get as far as reporting in that space," Kniffen said. "The consumer couldn't be better."

Price Action

Target shares hit a new 52-week high of $88.89 Wednesday and were trading higher by 5.44 percent at the time of publication.

Related Links:

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