Why This Analyst Is Still Bullish On Target After Q4 Results

Retailer Target Corporation TGT reported Tuesday morning fourth-quarter results that came in better than expected and reinforced the bullish case for the stock, according to BofA Securities.

The Target Analyst: Robert Ohmes maintains a Buy rating on Target's stock with a $260 price target.

The Target Thesis: Target reported fourth-quarter EPS of $2.67 versus BofA's estimate of $2.50 while same-store sales growth of 20.5% also beat estimates of 17% growth, Ohmes wrote in a note. The outperformance implies comps accelerated in January and suggests Target improved its market share across its core categories.

Ticket comps were up 13.1% in the fourth quarter while comp traffic growth of 6.5%. Also, EBIT margin of 6.5% improved 140 basis points year-over-year while gross margins also improved from 26.3% last year to 26.8%.

Digital sales grew 118% in the fourth quarter versus BofA's estimate of 100% growth and the strong performance contributed 13.6% to comps. Other digital initiatives include a 212% increase in same-day orders, while 95% of all sales were fulfilled by its stores.

"We view TGT as favorably positioned for the COVID-19 environment as well as trends over the long-term given strong execution of its stores-as-hub strategy as well as the company's exposure to accelerating Discount Store Decade (DSD) drivers (including new home sales, competitor store closings, and omni-channel momentum)," the analyst wrote.

Finally, Target didn't offer any fiscal 2022 guidance amid ongoing COVID-19 pandemic uncertainty, but the company remains well-positioned to maintain its momentum.

Related Link: Here's How Much Investing $1,000 In Target Stock 5 Years Ago Would Be Worth Today

The Target CEO: Target had a "very strong" holiday season and the continued momentum into January in which comps grew more than 30% even surprised management, Target CEO Brian Cornell said on CNBC's "Squawk Box."

Nevertheless, Target's momentum is due to its investments in the business to make it the "easiest" and "safest" place to shop.

Despite an incredible January, the "range of outcomes are still uncertain," the CEO said. Some of the variables that would impact sales in either direction include the state of the economy, the ongoing COVID-19 pandemic, distribution of vaccines and timeline for return to work, among others.

"We think right now the prudent thing for us to do is really just focus on execution," Cornell said.

TGT Price Action: Shares of Target closed down 6.7% at $173.49.

(Photo: Target)