The second quarter wasn’t kind to many companies, especially retail stores like Target. As inflation continued to heat up, the company saw its profits drop an astounding 90%. While competitors like Walmart are suffering the effects of inflation-weary customers as well, the extent to which Target has been affected is far more significant due to their higher price point. And, Target relies much more heavily on discretionary goods. Meanwhile, stores like Walmart boast a greater portion of sales from essentials, like groceries. Target responded to the drop in demand by slashing their prices – and yet, they still ended up with more inventory on shelves than in previous quarters.
Just how much did all this affect their net income for the quarter, though? A lot more than investors and analysts were expecting – to say the least. In the 2nd quarter of 2021, Target reported a net income of $1.8 billion. In the second quarter of 2022? Just $183 million. The retail corporation also experienced adjusted earnings of 39 cents per share compared to the expected earnings of 72 cents – virtually halving their expected performance. This is the second down quarter in a row for Target – a company that had previously reported 7 consecutive quarters of profitable growth. All of this has led to the stock dropping 3% – which, all things considered, isn’t as much of a drop as you might expect.
Target Executives Remain Optimistic – and VectorVest Stock Forecasting System Has Identified 2 Reasons to Buy Now
Despite one of the worst quarters in recent history, Target executives – and analysts – remain optimistic. There is reason to believe inflation is slowing. Furthermore, Target reports that their target market still has spending power – but is simply a bit more cautious on discretionary spending right now. They’re predicting another down quarter for Q3, followed by a better quarter for Q4 – leading to a stagnant second half of the year. They’ve already set their sights on making 2023 a better year.
And, the VectorVest stock forecasting system still rates Target a buy – despite the dramatically underperforming quarter. VectorVest’s software ranks and charts stocks using a proprietary rating system that simplifies investing. Rather than relying on hundreds of indicators and forms of technical analysis, we boil it down to three metrics: Relative Value (RV), Relative Safety (RS), and Relative Timing (RT). Together, these make up the overall VST (Value, Safety, Timing) rating a stock is given – which sits on a scale of 0.00-2.00. While it’s not all positive for Target, there are two key reasons the company has been rated a buy:
- Good upside potential: Relative Value takes into account the long term price appreciation potential for a stock – calculated from 1-3 years out. With an RV of 1.18, Target has good upside potential. This is coupled with a forecasted earnings growth rate of 14% – which is good as well.
- Good timing: In analyzing any stock, it’s important to look at the direction price is trending – and how much strength and magnitude is behind that trend. This can help you time your entry and exit to perfection. And right now, the trend for Target is good – with an RT of 1.18. This tells us the stock is in an uptrend, despite the negative earnings release. However, RT is falling from a recent high of 1.46, suggesting a sharp decline in upward momentum.
While the current RS (Relative Safety) rating is just 1.06, our system has rated Target a buy with a VST rating of 1.14 – which is fair on a scale of 0.00-2.00.
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VectorVest advocates buying safe, undervalued stocks, rising in price. As for Target, it is fairly valued with good upside potential and has good timing right now.
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