When Target Corporation (NYSE:TGT) announced its most recent earnings (05 May 2018), I did two things: looked at its past earnings track record, then look at what is happening in the industry. Understanding how Target performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see TGT has performed.
Did TGT beat its long-term earnings growth trend and its industry?TGT’s trailing twelve-month earnings (from 05 May 2018) of US$2.97b has increased by 8.67% compared to the previous year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 0.062%, indicating the rate at which TGT is growing has accelerated. How has it been able to do this? Let’s see whether it is merely owing to industry tailwinds, or if Target has experienced some company-specific growth.
In the past few years, Target expanded bottom-line, while its top-line declined, by successfully managing its costs. This has caused to a margin expansion and profitability over time. Eyeballing growth from a sector-level, the US multiline retail industry has been growing its average earnings by double-digit 11.66% in the previous year, and a more subdued 6.00% over the previous five years. This growth is a median of profitable companies of 24 Multiline Retail companies in US including Marks and Spencer Group, Marks and Spencer Group and Grupo Famsa. de. This means that any tailwind the industry is benefiting from, Target has not been able to gain as much as its industry peers.In terms of returns from investment, Target has invested its equity funds well leading to a 26.62% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 8.98% exceeds the US Multiline Retail industry of 8.58%, indicating Target has used its assets more efficiently. However, its return on capital (ROC), which also accounts for Target’s debt level, has declined over the past 3 years from 14.36% to 13.97%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 86.46% to 121.50% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I suggest you continue to research Target to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TGT’s future growth? Take a look at our free research report of analyst consensus for TGT’s outlook.
- Financial Health: Are TGT’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 05 May 2018. This may not be consistent with full year annual report figures.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.