Target Stock Price Forecast November 2021 – Time to Buy TGT Stock?

2021 is turning out to be a good year for Target (TGT) and the retail giant’s stock is up almost 50% for the year. What’s the forecast for TGT stock and is it a good buy even after its YTD outperformance?

This week, we’ll get earnings of several retail earnings. Apart from Target, we’ll get the quarterly reports of Walmart, Home Depot, Lowe’s, and Macy’s. To make the calendar even exciting, we’ll also have the retail sales data for October. Economists are forecasting that US retail sales grew a healthy 1.5% last month led by higher gasoline prices and early Christmas shopping by some consumers.

Target fiscal third-quarter earnings estimates

Analysts polled by TIKR expect Target to report revenues of $24.6 billion in the quarter, a year-over-year increase of 8.7%. The company’s revenues are expected to rise in high single digits in the fiscal fourth quarter also. However, post that, analysts expect growth rates to fall sharply.

During the fiscal second quarter, Target reported a comparable-store sales growth rate of 8.7% and guided for high single-digit comparable sales growth for the second half of the fiscal year. It expects the operating income margin for the full year to be above 8%. The comparable sales growth is a key metric for retail companies and helps understand the performance of stores that have been in operation for at least a year.

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Supply chain and labor issues

Analysts expect Target to report an adjusted EPS of $2.81 in the quarter, a YoY rise of 0.7%. Notably, the profitability growth is expected to lag the topline growth. The anomaly is not hard to understand and all the retail companies are battling higher costs. This includes higher wages and logistics costs. The US supply chains have been severely impacted by a mix of domestic and international factors. The labor shortage situation in the country has also been concerning and companies have had to increase wages in order to retain and attract workers.

How’s Target tackling supply chain issues

While the US retail industry is battling with supply-side issues, last month, Target tried to reassure markets that it is adequately stocked ahead of the holiday season. It said that it has been proactively working on securing supplies from overseas and the company’s “inventory is up substantially over the same time last year, helping us feel prepared to deliver for millions of families this season.”

It also talked about the massive investments that it has made in the supply chain over the recent years. Notably, given the current supply chain issues, companies that manage their supply chains better than their peers would outperform at least in the near term.

What to watch in Target’s earnings call?

During Target’s earnings call, markets would watch out for the management’s commentary on the demand environment in the US as well as the supply chain issues. The company’s guidance would also be in focus. Also, TGT might provide more color on its deal with BNPL (buy-now-pay-later) companies Affirm and Sezzle. Retail companies have been looking to add BNPL on their platforms in a bid to shore up sales. Amazon has also partnered with Affirm to bring the company’s BNPL solutions to select customers on its platform.

TGT stock price forecast

Wall Street analysts sound upbeat on Target stock and 23 of the 31 analysts covering it rate it as a buy or some equivalent. Seven analysts rate it as a hold while one analyst has a sell rating on the stock. Its median target price of $285 is a premium of 8.2% over current prices. The street high target price of $337 is a premium of 28% while the street low target price of $235 is a discount of almost 11%.

Analysts have been turning bullish on TGT stock

Yesterday, Bank of America reiterated both Target and Walmart as buys and termed these as the top picks in the retail segment. Last week, JPMorgan had also reiterated Target stock as overweight and called it a “clear winner” in the holiday season. It said “We also continue to believe that TGT’s 2Q print (and subsequently ORLY, FND, and W) are the early candidates of a moderating earning revision curve on gross margin. Taking a sequential view on this metric suggests TGT is more de-risked than others given its 2Q performance lowered the bar (especially considering increasing investor bearishness into the print).”

Target stock technical analysis

Target stock is looking bullish on the charts and recently broke out and hit a new record high. The earnings release could further add to the bullish sentiments. The stock trades above all key moving averages. However, with an RSI (relative strength index) of 67.5, it is now approaching the overbought zone. RSI values above 70 signal overbought positions while values below 30 signal oversold positions.

Should you buy TGT stock

Target stock currently trades at an NTM (next-12 months) PE of 21x which is higher than the historical multiples which have been around 16x. That said, all the retail stocks are trading at a premium to their historical multiples amid a broader market rerating and the strong retail spending environment in the US. Also, on a relative basis, Target looks reasonably valued at these multiples.

That said Target looks like a good retail stock to buy at these prices. While the stock might react to the earnings release in the short term, it is a fundamentally strong stock for the long term given its aggressive pivot towards e-commerce. The company also pays a dividend and the current yield of 1.36% is broadly in line with the S&P 500’s dividend yield.

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