Earnings season has been particularly brutal for retailers this quarter as the Amazonification of the industry continues. There are still brick-and-mortar survivors as 'next day delivery' still isn't convenient for certain things that consumers want to buy immediately. Walmart (WMT) has been a beneficiary of that tendency and Target (TGT) is reacting today as its 'same-day pickup' digital sales drove strong growth.
Target's earnings were $1.53 versus expectations of $1.43 but more important it raised its second quarter guidance and downplayed the impact of tariffs.
Target and Walmart are surviving in the fight with Amazon (AMZN) as they focus on ways for consumers to do their shopping quickly without the necessity of exiting a vehicle. Amazon can't match that capability since they simply don't have the store base.
Longer term the likelihood is that Amazon will move more goods to brick-and-mortar facilities to compete against Target and Walmart but the traditional retails still have location advantages that can't be easily copied.
Target is going to need the growth from this niche if it is going to be an attractive investment. Currently the stock sells with a trailing PE of 13. EPS growth this quarter was 16% which is what needs to be duplicated to keep the stock running. Currently the FYE January 2021 EPS growth estimate is 7% which doesn't present a basis for multiple expansion or even maintenance of the current PE.
Target is making the right moves in a highly competitive industry but producing the growth to drive a higher valuation is tough.
Technically the chart is a sloppy mess with two gaps lower in the past six months before the gap-up on earnings today. The chart has potential to develop but it will be instructive to see if today's gap fills. The tariff issue is another headwind and is likely to keep the stock suppressed in the short term.
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