Target (TGT) joins the list of big retailers that have posted exceptional strong earnings this quarter. Walmart (WMT) , Nordstrom (JWN) , Kohl's (KSS) and a number of other companies have seen their stocks jump when they beat estimates and reported strong guidance.
Retails have been booming for the simple reason that the economy is roaring and consumers are more optimistic than they have been in many years. It's a great environment right now but the positives are being priced in very fast.
Target has been running up and hit a new high on Monday largely because of the strong results from other retailers, but it is being chased up another 5% or so this morning.
The company announced earnings of $1.47 versus estimates of $1.40 and a slight beat in revenues. In addition, the company upped guidance for the third quarter ending in October 2018 to $1.00-$1.20 versus consensus estimates of $1.09.
Target trades with a trailing P/E of 16 and is looking at EPS growth for the FYE January 2020 of around 4%. That is an aggressive valuation but can work if the company continues to boost estimates and can produce same store sales growth of 5% or more.
Should you look to buy Target here? Probably the easiest way to answer that question is to look how Walmart has acted since an even stronger report. WMT gapped up to $100 and has traded down to the $95 area in a straight line since its report. Market players have not been willing to chase the big retailer higher at this point.
Target has a couple other obstacles compared to Walmart. The chart is more extended and the bear in the current quarter not as big. Target may have a slightly better valuation but it is still quite aggressive.
If I was an owner of Target I would be selling into the strength this morning and looking for an entry at a lower price. This is not a stock that can be chased based on fundamentals and technicals.