Thursday November 17, 2011
by Geoffrey Seiler, editor BullMarket.com
Target (TGT), a 'buy' on our recommended list, just delivered a stronger-than-expected third-quarter profit. The company delivered the kind of solid results we would expect to see during the middle innings of a slow recovery.
The gains were driven by solid sales in higher-margin categories like its signature apparel lines and home goods.
The credit card unit also performed well as the penetration of the company's REDcard rewards credit card, which gives cardholders a 5% discount on purchases, rose to 9.5% from 5.5%.
Target reported net income of $555 million for its fiscal Q3 2012 ended October 29th, equal to 82 cents per share. Its profit was up 3.7% from $535 million, or 74 cents per share, in Q3 2011.
Excluding items such as a one-time tax benefit and costs associated with its expansion into Canada, the company's profit was 87 cents per share, or 13 cents better than the Wall Street consensus estimate.
Target's total revenue grew by 5.1% to $16.4 billion, which also topped the analyst consensus estimate of $16.28 billion. Sales on a same-store basis grew by 4.3% during the quarter.
The company continues to differentiate itself through its merchandise assortment and overall value proposition, as befits its "expect more, pay less" tag line.
It signed several deals with notable designers such as Jason Wu to develop affordable fashions and accessories for women. We would expect those efforts to translate into respectable sales this holiday season.
Overall, we continue to like the direction Target is headed. The REDcard 5% rewards program is clearly a winner in terms of driving traffic and incremental sales as Target's best customers continue to embrace it.
Target has projected it can earn more than $8 per share in the next six to seven years, which looks achievable and makes the stock look like a bargain at current levels.
Trading at a bit over 12x the 2013 consensus (FY ending January 2013), we rate the stock a "Buy" with a target price of $64.
Learn more about this financial newsletter at Geoffrey Seiler's BullMarket.com.
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