Target Reports Results And Blows Past The Consensus
Target (TGT) reported earnings this morning and led me to a singular conclusion; tech is going to boom this year. I’m sure by now you’re thinking that I’m either crazy, Target is doing something behind the scenes you don’t know about, or maybe I’m on to something.
To clear up any confusion, Target is not doing something behind the scenes you don’t know about and I'm not crazy. Target is not going to single-handedly lift the entire tech sector but its results are an example of something I’ve been writing about the entire pandemic. The shift to tech, technological adoption by the masses, and eCommerce are getting a boost from the pandemic that will last well, they'll last forever.
Comps Dazzle Despite Lock-Downs, Can You Guess Why?
Target reported results this morning and beat consensus on the top and bottom lines. The company reported an 11.3% increase in YOY revenue that exceeded consensus by 300 basis points. The strength in earnings carried through to bottom-line despite increased costs related to employment and distancing measures. Adjusted EPS came in at $0.59, $0.19 above consensus, while GAAP EPS of $0.56 beat by $0.10.
Regarding comps, comps grew by 10.8%, more than 300 basis points above expectations, driven in part by pantry-loading and accessibility. The comps are driven more by Target's eCommerce platform Target has a high-quality eCommerce platform thanks to its competition with Amazon and that platform is backed up by same-day pickup services. eCommerce sales grew by 141% in the quarter and are expected to be strong in Q2 as well.
- eCommerce is the ultimate form of social distancing. If you don't want to go out, or get close to people, just use eCommerce and have it delivered.
Credit Suisse reiterated its Outperform rating on Target due to the results and preliminary Q2 outlook. eCommerce sales in April topped the +280% mark and show no signs of abating. According to analyst Seth Sigman, the company is well-positioned to ride out the post-pandemic period as its competitors continue to struggle with disruption. What he means is, Target will outperform and gain market share while all those other retailers not prepared to compete in eCommerce struggle to catch up.
The Need To Compete Is Why Tech Will Boom
If you aren’t clear on why Target will lead Tech to boom in 2020 let me spell it out. It’s because Target is proving eCommerce and digitization is the only way to compete in the post-pandemic world. Because Target is ahead of the game retailers in the grocery, home goods, apparel, and consumer staples segment need to catch up or face irrelevance. And that’s just the tip of the iceberg, businesses in virtually all sectors and industry are in the same boat so to speak. Woefully behind in their need to adopt technology in any form.
One way to play this boom is Accenture (ACN). Accenture is the world’s leading business consulting firm and a specialist in business technology. The company operates in five segments covering all business industries and has working relationships with all major technology providers. When the business world needs help restructuring, adopting, or upgrading technology Accenture is one of the first names to call.
Accenture is expected to grow revenue and earnings this year, next year, and the next 5 years at least. This year revenue should come in about 2.7% higher, EPS about 4.0%, with those figures accelerating to 5.8% and 6.5% next year. Earnings are used to fuel growth and pay a dividend which, at today’s prices, yields about 1.65%. The company has a history of dividend increases and a low 41% payout ratio so there is some expectation for future increases.
The Technical Outlook: Bullish With Freshly Set New Highs
The technical outlook for Accenture is bullish. The company has been recovering steadily since hitting bottom in March and just broke to new highs. The break-out is supported by the indicators which are both firing bullish crossovers in tandem with a nice-looking bounce from the short-term moving average. There is a risk that prices will fall to retest support but, if so, it would be a buying opportunity provided no bad news is involved. Otherwise, this stock looks like it will soon be retesting the 2020 highs which are, by coincidence, the current all-time highs. I won’t be surprised if new all-time highs are set before the end of the year.
12 Stocks Corporate Insiders are Abandoning
An insider trade occurs when a corporate executive (such as a CEO, CFO, or COO) has non-public information about a company buys or sells shares of that company's stock. Company insiders are required by law to regularly report their stock purchases and sales to the SEC.
Tracking a company's insider trades is a metric that can be used to identify the direction that the company's executives believe that the company is headed. If a number of insiders sell shares of their company, they may believe that the company will have weak future earnings and that the share price will decline in the near future.
For example, if Microsoft's CEO, CFO, and COO all recently sold shares of Microsoft stock, that would be an indication that there could be unreported news that may negatively affect Microsoft's stock price in the near future.
This slideshow lists the 12 companies that have had the highest levels of insider buying within the last 180 days.
View the "12 Stocks Corporate Insiders are Abandoning".