Are All-Time Highs Supported By Target?

on March 08 2013 2:44 PM

With shares of Target (NYSE:TGT) trading around $66, 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:

C = Catalyst for a Stock’s Movement

Target operates general merchandise stores in the United States that offer household essentials, personal care, pharmacy, electronics, sporting goods, groceries, and family apparel. The company offers most of what consumers are looking for in one store that offers a quick and convenient shopping experience. As American consumers continue to look for discounted essentials in a central location, look for Target to continue its dominance.

T = Technicals on the Stock Chart are Strong

A quick look at Target’s long-term price chart sees the stock in an uptrend since its initial public offering in 1993. Of course, its run has slowed but that does not take away from the stock’s amazing run. Currently, Target stock is trading near pre-crisis levels which coincide with all-time highs in the stock. A convincing break above these price levels would leave little price resistance in sight for Target.

Evaluating a price trend can be efficiently done with the use of key moving averages. In fact, the key simple moving averages can provide insight into the trend and strength of the trend. What are the key moving averages? The 50-day, 100-day, and 200-day simple moving averages. Target stock is currently trading above all of its key rising simple moving averages as well. As an added bonus, the stock is also trading above its rising 20-day simple moving averages. Target’s moving averages are signaling a strong uptrend in the stock.

A relatively simple way to gain perspective into investor sentiment is through the use of the options market. More specifically, taking a look at the implied volatility and implied volatility skew levels of Target options may help determine if investors are bullish, neutral, or bearish. The implied volatility of Target options is at 17.04 percent today which coincides with a zero percentile over the last 30 trading days and zero percentile over the last 90 trading days. What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

The implied volatility skew of April and May put and call options is at about average. So as of today, there is an average demand from call and put buyers or average supply of call and put sellers, all neutral over the next two months. Investors are buying a minimal amount of call and put option contracts and are leaning neutral over the next two months.

E = Earnings Are Increasing Quarter-Over-Quarter

A rising stock price is often a result of increasing earnings and revenue growth rates. Of course, a seasoned company like Target is not able to post rates as large as pure growth companies and investors are aware. What do the last four quarterly earnings and revenue growth figures for Target look like? The last four quarterly earnings growth (Y-O-Y) rates have been: 2.08, 17.07, 2.91, and 5.05 percent while the last four revenue growth (Y-O-Y) rates have all been: 6.76, 3.21, 3.32, and 5.85 percent. Target has displayed great earnings and revenue growth rates over the last four quarters.

How did investors take these numbers? The last four quarterly earnings announcement reactions help gauge investor sentiment on Target’s stock. The last four quarters have seen next trading session returns of -1.45, 1.72, 1.76, and 0.43 percent. The markets have been pleased with Target’s earnings reports. The latest negative next trading session return has proven to be a buying opportunity as the stock has shot much higher in the days that followed.

E = Excellent Relative Performance Versus Peers and Sector

Target has been in a strong uptrend since its IPO but how has the stock done, relative to its peers and sector, year-to-date? Year-to-date, the stock is returning 12.46 percent while its competitors, Costco (NASDAQ:COST), Wal-Mart (NYSE:WMT), Dollar General (NYSE:DG), and sector are returning 1.42, 5.42, 10.81, and 7.36 percent respectively. Target has led its peers and sector by a significant margin.

Conclusion

Target offer the ease, prices, and convenience that a general merchandise store should. Consumers are pleased with their business model as seen in its increasing earnings and revenue growth rates. These increasing earnings and revenue growth rates have in turn fueled a rising stock price that has outperformed its peers and sector. Look for Target stock to OUTPERFORM.

 

Copyright Wall St. Cheat Street. All rights reserved.

More News from IBT MEDIA