Can Target Climb Higher?

With shares of Target (NYSE:TGT) trading around $59, is TGT an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Target operates general stores in the United States as well as online, where it sells merchandise at discounted prices. It operates in three segments: U.S. Retail, U.S. Credit Card, and Canadian. Target’s online presence is designed to enable consumers to purchase products either online or by locating items in one of its stores with the aid of online research and location tools. Groceries, clothing, household items, and general merchandise can be found at Target, making it an efficient shopping experience for consumers throughout the nation.

Target is vastly expanding the goods available to order by subscription as it fends off its biggest non-traditional retail rival, Amazon.com (NASDAQ:AMZN).The nation’s second-largest discounter first dabbled with subscriptions in September, trying to win over haggard parents by making available 150 baby care products. Target expanded that program more than tenfold this week, to nearly 1,600 items across a much wider array of products. Everything from beauty products and pet supplies to home office supplies are now available for regular delivery.

T = Technicals on the Stock Chart Are Mixed

Target stock has struggled to make significant progress over the last couple of years. However, the stock is currently moving higher and looks set to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Target is trading between its rising key averages, which signals neutral price action in the near-term.

TGT

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Target options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Target Options

17.35%

11%

9%

What does this mean? This means that investors or traders are buying a small amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Average

Average

June Options

Average

Average

As of Thursday, there is average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Target’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Target look like and more importantly, how did the markets like these numbers?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

-44.9%

-43.75%

-10.38%

-25.96%

Revenue Growth (Y-O-Y)

-5.32%

1.95%

2.01%

-0.95%

Earnings Reaction

7.04%

-3.45%

-3.6%

-4.01%

Target has seen decreasing earnings and mixed revenue figures over the last four quarters. From these numbers, the markets have been pleased with Target’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has Target stock done relative to its peers – Wal-Mart (NYSE:WMT), Costco (NASDAQ:COST), and Kohl’s (NYSE:KSS) — and sector?

Target

Wal-Mart

Costco

Kohl’s

Sector

Year-to-Date Return

-5.34%

-1.51%

-4.77%

-4.53%

-3.03%

Target has been a poor relative performer, year-to-date.

Conclusion

Target operates discount general stores across North America, where consumers continue to enjoy their shopping experience. The company is vastly expanding the goods available to order by subscription. The stock has struggled to make significant progress but is currently moving higher. Over the last four quarters, earnings have been decreasing while revenues have been mixed, which has left investors pleased. Relative to its peers and sector, Target has been a poor year-to-date performer. WAIT AND SEE what Target does the rest of this quarter.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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