What Target’s Earnings Will Mean for Big Retail

Target Corp. (NYSE: TGT) is set to report its fiscal fourth-quarter financial results before the markets open on Wednesday. The consensus estimates from Thomson Reuters call for $1.54 in earnings per share (EPS) on $21.75 billion in revenue. In the same period of the previous year, the retailer posted EPS of $1.50 and $21.75 billion in revenue.

These upcoming earnings will provide good insight to the direction of Big Retail for the years to come, essentially whether it will continue to keep general pace with the S&P and the Dow, or whether the sector will stagnate and fall.

The effects of downsizing and regrouping, and whether it is helping, will become more evident at this point. While Wal-Mart’s store closures have yet to happen, let alone have a meaningful effect on its earnings and balance sheet, Target’s exit from Canada is already completed and its pharmacy handover to CVS is done. The results post-Canada exit are not impressive and the stock has been relatively stagnant since the move.

Also the handover to CVS only happened in December, so for the first time we will see the full effects of both moves on the top and bottom lines. If there is another earnings disappointment, it certainly won’t bode well for Wal-Mart. But an earnings beat will tell markets that downsizing and refocusing are exactly what the sector needs.
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Essentially, Target’s next earnings will help demonstrate whether brick-and-mortar retail is slowly shrinking and shriveling up in the face of e-commerce, or whether it has only temporarily retreated in order to regroup as a more focused and efficient operation, perhaps to find new growth opportunities elsewhere. For Wal-Mart shareholders, that means positive earnings for Target could mean that shares will continue their recovery after the nightmare of 2015, while a disappointment could be signaling that the bounce won’t last.

A few analysts weighed in prior to the Target earnings report:

• Sterne Agee CRT has a Neutral rating and raised its price target to $77 from $72.
• Piper Jaffray has an Overweight rating but lowered its price target to $84 from $86.
• Deutsche Bank reiterated a Hold rating.

So far in 2016, Target has remained relatively flat, with the stock up only about 1% year to date. Over the past 52 weeks, the stock is down 2.9%.

Shares of Target were trading up 0.9% at $73.10 on Tuesday, with a consensus analyst price target of $82.65 and a 52-week trading range of $66.46 to $85.81.