3 ETFs to Buy if You Think Target Beats Earnings

Target's (TGT) third-quarter results will not only show how the retailer is dealing its struggling grocery business, but how its smaller store and digital offerings are doing in an effort to reach new shoppers.

The Minneapolis-based retailer, which competes with the likes of Walmart (WMT) , is working on flexible store formats, including one that recently opened in Tribeca neighborhood in New York. This is the fourth store of this type, one that Nomura analyst Jessica Schoen Mace thinks is appealing to the surrounding demographics.

"The flexible format store is one of Target's key growth initiatives to reach a new set of consumers, mostly in urban areas that are typically too dense to accommodate [Target's] larger store layouts," Schoen Mace wrote in a note to clients. "Generally under 50,000 sq. ft. in size, a Target flexible format store is designed to reflect the personality of the neighborhood in which it is located and to offer a curated and localized assortment of goods."

Schoen Mace has a neutral rating and a $75 price target on Target shares.

The company, which has struggled with its grocery business, recently replaced the head amid lackluster sales. Investors will be looking to hear what the retailer has, as it competes with Walmart, Amazon (AMZN) and others for the $600 billion grocery business.

In addition, investors will want to hear about its digital business, which does around $2.5 billion in annual sales, according to Barclays Capital analyst Matthew McClintock. 

Analysts surveyed by Yahoo! Finance expect the company to earn 83 cents a share on $16.34 billion in sales when it reports results on Nov. 16.

If investors like what Target has to say about the upcoming third-quarter results, as well as its outlook for the holiday shopping season, these three ETFs could benefit. 

VanEck Vectors Retail ETF

Target makes up 4.66% of the VanEck Vectors Retail ETF (RTH)  which has $107.7 million in assets under management and has a 0.35% expense ratio.

Nomura's Schoen Mace noted the the flexible format store has been successful so far for Target. "We view the opening of the Tribeca store positively and believe it will serve as an important test case of the overall appeal and success of the flexible store format, and we plan to continue conducting checks in this location," the analyst penned in a note to clients.

First Trust Nasdaq Retail ETF

The First Trust Nasdaq Retail ETF  (FTXD) has Target make up 4.14% of its $1.9 million portfolio and charges investors a 0.6% expense ratio.

Barclays Capital's McClintock noted that Target's digital business is smaller than its peers and has experienced two quarters of decelerating growth.

"Whereas digital was once heralded as key to maintaining relevance, recent commentary suggests Target is doubling down on stores," McClintock wrote in a note to investors. "The shift follows disappointing sales, and we believe suggests Target is struggling to find a comprehensive strategy to drive meaningful growth."

First Trust RBA Quality Income ETF

The First Trust RBA Quality Income ETF (QINC) has Target make up 3.23% of its $22.3 million portfolio and charges investors a 0.7% expense ratio.

McClintock also noted that Target has shifted a lot of its spending towards technology, but it hasn't really altered Target's digital business. This is something that investors will want to hear more about, as it struggles against the competition.

"It is unclear how Target can accelerate online growth and change the trend without substantial investments in the business: Moreover, the departure of CDO Jason Goldberger after ~4 months in the newly created role and management's tonal shift to emphasizing the importance of brick and mortar stores after disappointing results lead us to question how the company's digital strategy will evolve," McClintock wrote to investors. 

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