Will Target’s Share Price Bounce Following Q2 Earnings?

Target's [TGT] share price has finally returned to positive territory for 2020. The stock recovered all of its losses for the year in early August and is now up 9.65% year-to-date (through 17 August’s close).

Target’s share price plunged 23.8% in the first quarter, as a result of the COVID-19 pandemic. However, the US giant has launched one of the strongest recoveries in retail and is now up 50% from its year-to-date low on 25 March.

Looking back over the past 12 months, Target’s share price has had a stellar run, rising 65% year-over-year. That this follows the previous 12 months, where the stock moved by just pennies, illustrates the current momentum building behind the company, even amid the coronavirus pandemic.

Target’s share price recovery comes just in time for its second-quarter earnings release, which is due to be announced on 19 August.

Target's Q2 expectations

Analysts are increasingly weighing in on Target’s share price ahead of the US retail giant’s second-quarter earnings release. Edward Kelly of Wells Fargo lifted his price target to $155 from $135, while maintaining an Overweight rating for the stock.

According to commentary cited by The Fly, Kelly has “improving confidence in the company's ability to capitalize on current dislocations,” adding that “strong COVID-related demand, [government] stimulus, share gains, and attractive company-specific positioning” should propel Target’s share price alongside fellow big-box retailer Walmart [WMT].

With Walmart set to release its earnings on 18 August, investors will be looking for some extra guidance on how they should expect Target's sales to have performed in the past quarter when it reports the next day.

Demand, growth and earnings

Writing in InvestorPlace, MoneyWire editor Matt McCall set out three reasons to buy Target’s stock ahead of earnings, citing consumer demand, Target’s share price growth expectations and the potential for an earnings rally.

“Shares of TGT stock are right near all-time highs as investors continue to bid this name higher. With earnings set for August 19, shares may continue to run up ahead of the event,” he writes.

“The stock is maintaining above all of its major moving averages. Shares recently broke out over $125, the high from May. Then Target took it a step further and cleared the 2019 highs. If the broader market cooperates, TGT stock could maintain momentum higher.”

More widely, analysts appear to be generally in favour of the stock. Of the 28 analysts polled by CNN, the consensus rating from 15 is to Buy Target, alongside two Outperform, nine Hold and two Sell ratings.

Analysts’ consensus estimate for Target’s second-quarter earnings per share is $1.63, representing a noteworthy jump from the $0.59 reported in the first quarter – which also beat analysts’ expectations of just $0.44. An EPS of $1.63 would place the stock slightly below its second-quarter 2019 results of $1.82.

Sales are, however, expected to be up on the same period in 2019, at $19.9bn compared with the $18.4bn reported in the same quarter a year ago.

Q2 sales growth key to Target’s share price outlook

If sales have rebounded in the second quarter, as many analysts expect, momentum could propel Target’s share price higher, particularly as it has been on an impressive rally in recent months.

It’s a trend that could be set to continue in 2020, particularly as the US holiday season, typically the best period for Target, is yet to come.

That said, there are some headwinds that could significantly decrease US consumer spending of which investors should be wary. A further increase in COVID-19 cases, stricter US lockdowns and the potential for far greater unemployment levels in the event of a deep recession could all take their toll on Target’s share price.

Even so, as a retailer that offers good value to customers, Target’s share price may well be able to weather future storms — particularly if the Q2 earnings report is positive.