How Will Target's (TGT) Stock Be Affected By Its First Quarter Earnings Results?

NEW YORK (TheStreet) -- Shares of Target Corp.  (TGT) are flat in heavy volume trading after reporting that its net income slid 16% to $418 million, or 66 cents per share, from $498 million, or 77 per share cents, a year earlier

Analysts had projected 71 cents on average, according to Bloomberg data.

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Sales were up 2.1% to about $17 billion last quarter, in line with estimates. While U.S. same-store sales dropped 0.3 percent, that was better than the 1.1% decline analysts projected, Bloomberg noted.

However, same-store sales didn't fall as much as predicted, signaling to investors that a comeback may be under way, Bloomberg said.

The company is dealing with a troubled Canadian division and the theft in the last quarter of 40 million payment card numbers by hackers. 

Target lowered its annual earnings forecast to $3.60 to $3.90 a share, down from a previous range of up to $4.15. It projected adjusted earnings of 85 cents to $1 per share for the second quarter, compared with an average estimate of about $1.03.

"We are not where we need to be," said interim CEO John Mulligan on a conference call this morning. "The progress is great to see, but it's small progress."

For now, the company is holding off on stock buybacks, and said it probably wouldn't initiate any repurchases before the second half of the year.

TheStreet Ratings team rates TARGET CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate TARGET CORP (TGT) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. Among the primary strengths of the company is its solid financial position based on a variety of debt and liquidity measures that we have evaluated. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The debt-to-equity ratio is somewhat low, currently at 0.85, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.16 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 12.8%. Since the same quarter one year prior, revenues slightly dropped by 5.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • TARGET CORP's earnings per share declined by 44.9% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, TARGET CORP reported lower earnings of $3.07 versus $4.53 in the prior year. This year, the market expects an improvement in earnings ($4.00 versus $3.07).
  • Net operating cash flow has decreased to $1,767.00 million or 10.62% when compared to the same quarter last year. Despite a decrease in cash flow TARGET CORP is still fairing well by exceeding its industry average cash flow growth rate of -21.85%.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. When compared to other companies in the Multiline Retail industry and the overall market, TARGET CORP's return on equity is below that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: TGT Ratings Report

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