When Target (NYSE:TGT) announces its profits next week, UBS expects gains in important areas including inventory and operating margins.
A sharp drop in operating income and a sizable reduction in gross margin for the company’s first quarter report sent shares plummeting.
Furthermore, a more than 40% increase in inventory levels from the previous year stoked concerns about markdowns and consequently increased margin pressure going forward.
Guidance reductions made in the wake of the poor quarter did little to stem the tide of negative sentiment toward the brand.
Target’s 2nd Quarter Results Expected to be Better Than 1st Quarter
The retailer is anticipated to come out significantly stronger after its second quarter results than it did after its first quarter results, UBS analyst Michael Lasser said.
He cautioned clients that Target’s many guidance decreases this year do not always translate to doom and gloom for the company. He said he thinks Target is in a good position to benefit from shifting customer habits and behaviors.
According to Lasser, management’s vigorous measures to reduce superfluous inventory are starting to pay off and should have a positive long-term effect.
In addition, he anticipates that the company will pleasantly surprise pessimistic observers with a positive same-store sales performance in its earnings report that is due to be given on August 17.
Whether Target has taken aggressive enough action to clear out its inventory and can it maintain its comp momentum into ’23 is at the core of these problems, according to Lasser. He added that he believes that the previous questions have a yes response.
Lasser said, citing the Swiss bank’s models as being much above the analyst consensus for the upcoming year, that the company’s profitability projections through 2023 were “achievable if not prudent.” In contrast to the Wall Street average estimate of $12.06, Lasser presently predicts 2023 EPS will be $12.85.
We believe that the bull case will have more support than the bear case as a result of this print, he said. In our opinion, that will cause the stock to rise.
Lasser reiterated a “Buy” rating and a $205 price objective for the company. On Tuesday, the price of Target Corporation (NYSE:TGT) shares dropped below $165.
Featured Image: Megapixl © Alexeynovikov2
