Target Corp. (NYSE: TGT) investors mostly ignored a disappointing first-quarter earnings report in May, sending the stock higher by more than 4 percent in the weeks that followed. About 2.8 percent of that gain came this week after Bank of America analyst Robert Ohmes said Target management remains optimistic about the second half of 2018.
Ohmes had the chance to speak with Target management at this week’s analyst event in New York, and he is now convinced Target can return to earnings growth in the second half of the year.
Target blamed bad weather for its first-quarter same-store sales miss, but management assured analysts this week that the second quarter is off to a strong start. Target says it’s on track to hit its guidance target of midsingle-digit same-store sales growth in the second quarter. Ohmes says digital sales initiatives and a strong toy business will help support sales growth through the remainder of the year.
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On the digital side, Target expects to expand its Shipt same-day delivery service from 700 stores to 1,000 stores in the second quarter. Ohmes says more than 50 percent of Target’s digital sales volume is now fulfilled in-store. Drive-Up pickup service is offered at 250 stores and will be expanded to about 1,000 stores by the end of the year. In addition, Target now offers next-day shipping and free two-day shipping nationwide for orders of $35 or more.
Ohmes says Target’s toy sales will get a major shot in the arm from the closing of Toys R Us.
“We believe TGT has roughly 20 percent market share in toys and baby and would be disappointed if TGT didn’t get more than its fair share from the Toys R Us store closures,” Ohmes says.
In addition to near-term catalysts in 2018, Ohmes says there are several long-term drivers that should keep Target’s bullish momentum intact for years to come.
One of the major catalysts will be cost reduction. Ohmes says holiday labor costs will level off this year, and depreciation and amortization costs from store remodeling should also begin to plateau in the second half of the year.
Ohmes says demographics trends also favor Target in the long term.
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“We also view TGT as a key beneficiary of the discount store cycle that we expect to play out over the next five to 10 years,” he says.
Bank of America has a “buy” rating and $86 price target for TGT stock.
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Target Corporation (TGT) Stock Has Plenty of Catalysts Ahead originally appeared on usnews.com
