Will Target Continue To Explode?

With shares of Target (NYSE:TGT) trading around $68, is TGT an OUTPERFORM, WAIT AND SEE or STAY AWAY? Lets analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Target operates general merchandise stores in the United States. The companyoperates in three segments: U.S. Retail, U.S. Credit Card, and Canadian. As a component of the U.S. Retail Segment, its online presence is designed to enable guests to purchase products either online or by locating them in one of its stores with the aid of online research and location tools.Its U.S. Credit Card Segment offers credit to guests through its branded credit cards, the Target Visa and the Target Card. Additionally, it offers a branded Target Debit Card. Its Canadian Segment is a result of its purchase of leasehold interests in Canada from Zellers, Inc. Through its segments, Target is able to reach a wide range of audiences and provide highly demanded products for years to come.

T = Technicals on the Stock Chart are Strong

Target stock has been an excellent winner in the long-term. The stock has been slow to rise in recent years but looks to be set to test new prices. A break higher, above long-term resistance levels, may be very positive for the price of the stock. 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 above its rising key averages which signal neutral to bullish price action in the near-term.

TGT

(Source: Thinkorswim)

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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

20.76%

96%

91%

What does this mean? This means that investors or traders are buying a very significant 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

Flat

Average

June Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish 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 Increasing 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?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

1.39%

17.07%

2.91%

5.05%

Revenue Growth (Y-O-Y)

6.76%

3.23%

3.33%

5.83%

Earnings Reaction

-1.45%

1.72%

1.76%

0.43%

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

P = Excellent Relative Performance Versus Peers and Sector

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

Target

Wal-Mart

Kohl’s

Costco

Sector

Year-to-Date Return

16.21%

15.05%

9.31%

6.11%

13.87%

Target has been a relative performance leader, year-to-date.

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Conclusion

Target, through its convenient locations, provides essential and highly demanded products and services at reasonable prices to a wide range of consumers across the nation. The stock has been a decent gainer for long-term investors and still looks poised to head higher on increasing earnings and revenue figures. Relative to its peers and sector, Target has led in year-to-date performance. Look for Target to continue to OUTPERFORM.

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