Target's Strong Q2 Performance Impresses Analysts, But Caution Remains Over Future Margin Pressures

Target Corporation TGT shares are trading higher after the company reported better-than-expected second-quarter financial results and raised its outlook.

Target has raised its full-year 2024 adjusted EPS outlook to a range of $9.00 to $9.70, up from the previous range of $8.60 to $9.60. This new outlook compares to an estimate of $9.36.

Analysts covering the retail behemoth provided their takes:

• JP Morgan analyst Christopher Horvers reiterated a Neutral rating.
• Goldman Sachs analyst Kate McShane reiterated the Buy rating on Target with a price forecast of $191.

JP Morgan: Horvers noted that comparable sales were at the high end, with lower product costs mitigating expected promotional pressures, leading to stronger-than-expected results. The forward guidance appears reasonable rather than overly conservative.

Also Read: Lowe’s Q2 Earnings Reflect Pro Strength, DIY Weakness, Analysts Say: How Retailer Stacks Up To Home Depot

Using the higher end of the EPS range and applying a 16x multiple suggests a target price of $155, with the midpoint at $150. The retailer’s guidance implies an EPS of $2.30-$2.70 in 4Q, with the Street at $2.84.

Goldman Sachs: McShane writes that the quarterly gross margin of 28.9% was higher than Goldman Sachs’ estimate of 28.2%. The year-over-year increase of +185 basis points was attributed to the net effects of merchandising efforts.

Cost improvements more than compensated for higher markdowns, while a favorable category mix and reduced adjustments between book and physical inventory contributed positively. This was partially offset by increased digital fulfillment and supply chain expenses compared to the previous year.

The downside risks include several factors, the analyst highlighted. There is the potential for traffic and sales trends to slow if consumer spending weakens.

In addition, margins could face pressure from investments in omni-channel capabilities, supply chain improvements, and shifts in product mix, McShane added.

Price Action: TGT shares are trading higher by 11.8% to $161.34 at last check Wednesday.

Photo via Shutterstock

Read Next:

• Billionaire Hedge Fund Manager David Einhorn Says Stock Market Is Fundamentally Broken: Here’s Why