One of the largest consumer staples companies in the world, Target (NYSE: TGT) has been valued at a market cap of $124 billion, at the time of writing. Target just reported its Q3 results on November 17 and lost 4.73% in market value.

Does this pullback offer investors the chance to purchase a blue-chip stock at a lower multiple right now?

 

What impacted Target sales in Q3?

Target’s third-quarter revenue rose by 12.7% year over year to $25.3 billion while adjusted earnings per share rose 8.7% to $3.03. Comparatively, Wall Street forecast the company to report sales of $24.8 billion and adjusted earnings per share of $2.83 in Q3.

Target confirmed comparable sales growth was driven entirely by traffic as store comparable sales rose by 9.7%. Digital comparable sales were up 29% in Q3, following the 155% growth experienced in the same period in 2020. The company explained that 95% of Q3 sales were fulfilled by stores which indicates it derived 5% of revenue from the online channel.

Target’s CEO and Chairman, Brian Cornell stated, “Following comp growth of nearly 21 percent a year ago, our third quarter comp increase of 12.7 percent was driven entirely by traffic, and reflects continued strength in our store sales, same-day digital fulfillment services and double-digit growth in all five of our core merchandising categories. With a strong inventory position heading into the peak of the holiday season, our team and our business are ready to serve our guests and poised to deliver continued, strong growth, through the holiday season and beyond.”

In Q4 of 2021, Target expects high-single to low-double digit growth in comparable sales lower than the previous guidance where it expected a high-single digital increase. The company also expects full-year operating income margin rate of over 8% in 2021.

 

Target stock price has significant upside potential

Target increased its guidance for Q4 as the company is experiencing higher demand as consumers are shopping ahead of schedule due to supply chain issues impacting global markets. 

Its robust forecast showcases Target’s strong inventory position and increased consumer spending in the near-term.

The only reason for the decline in Target stock price on Nov. 17 was the higher wages and expenses it incurred to maintain operational efficiency. Until now Target has managed to pass these costs to consumers enabling it to preserve profit margins. But, the company warned several investors have raised prices due to higher inflation numbers.

According to Stifel analyst Mark Astrachan, Target reported mixed results in Q3. But the results are solid despite a 260 basis point decline in gross margins. In addition, Astrachan noted that Target’s comps continue to outpace Walmart (NYSE: WMT), and the 2-year sales stack has been consistent with the first half of 2022 levels. Stifel has a Buy rating on Target with a price forecast of $280.

Baird analyst Peter Benedict also remains optimistic about Target as the company’s actions to secure inventory has helped it gain market share. Target’s top-line momentum is solid and shareholder returns are forecast to accelerate in the future. Baird has an Outperform rating on Target with a price estimate of $285 on the stock.

Target (NYSE:TGT)
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