Did the market overreact to Target Corporation’s EPS decline?

0
By:

Motiur Rahman

on
May 25, 2022

Target reported growth in revenues and a decline in EPS due to inflation pressures.

The market reacted to the news last week causing a 30% decline.

Target will recover in the coming months as EPS is expected to grow.

Target Corporation (NYSE:TGT) crashed 30% last week after announcing a decline in EPS. The crash created a wall of worry for the retail segment. However, the market may have overreacted to the decline as it can be explained by the inflationary pressure on cost.

The retail industry suffers the most from inflationary pressure. While the industry is expected to transfer the cost to the customers, sometimes it is not possible. That happens if inflation rises rapidly, pushing up the costs faster than the business can optimize the trade.


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Target Corporation suffered because of the impacts of inflation on costs versus revenues. While revenue increased, the business reported an EPS decline. It shows that costs increased faster than revenues. It also reveals the sensitivity of the profits to inflation.

This analysis projects that Target Corporation will effectively manage the costs, and the next results will indicate EPS growth. Should that happen, Target would gain faster than it dropped. Target Corporation remains an attractive value stock for keen investors.

Target consolidates at the bottom before pivoting upwards

Source – TradingView

Target is consolidating at the bottom valuation of $150. The stock is trading at an RSI of 29, marking a significant inflection point. However, the bear markets are not helping much. The price is expected to gain significantly towards the next earnings call. The projection is based on expectations of improved EPS.

Summary

Target Corporation is a buy at the current valuation. Its decline to the bottom is a result of sensitivity to inflation. The company will recover before the next earnings as EPS is expected to grow.

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