Stock of the day 18/05/2015 – Target Corp/Staples Inc

Despite signs of earnings season slowing down, there are still some big hitters to left to announce as Target Corp and Staples Inc reveal their first quarter results on Wednesday.

With Wal-Mart announcing on Tuesday, and Best Buy on Thursday, Target falls in the middle of this week’s mega-store earnings sandwich. A fairly flat start to 2014 eventually gave way to strong gains by the end of the year, opening at $63.60 before entering 2015 at $76.12. Things have continued on this largely upward swing, and Target has certainly seen a better start to 2015 than it did in the previous year. A relatively stagnant January led to a low of $71.91 at the start of February; however, from that point onwards things picked up, and at the start of April Target was trading at a high of $83.74. This level couldn’t be sustained, and May saw a $5 slide, leading to a current price of $78.50.


(Source: IT-Finance.com 18/05/2015)

The biggest piece of news for Target in 2015 hasn’t been a good one. Target Canada, the company’s attempt to expand its presence in America’s northern cousin, was an abject failure, with the subsidiary filing for bankruptcy back in January after only opening in March 2013. Unsurprisingly this issue is still causing headaches for its American parent; the US Target may be on the hook for unpaid leases in Canada instead of the subsidiary, with estimates suggesting Target Canada owes creditors around $2.2 billion. Whilst Target recently sold around $151 million in leases, and a distribution centre, to Lowe’s, this still leaves a hefty deficit to deal with.

There is also the issue of America’s general consumer sentiment at the moment. Consistently weak figures in this area for the past few months could spell trouble for Target, alongside its mega-store competitors, as savings on oil and rising wages fail to make much of a difference to the public’s spending habits. In order to ease this issue, Target is trying to switch up its most pushed products in order to reflect the changing tastes of its consumers, with selections from Campbell Soup, General Mills, Kraft and Kellogg all getting the chop. The link between these brands is the lack of healthier fare, something Target is trying remedy with a focus on fresher, less-processed foods.

Target appears to be consolidating its core business. The sale of its Target Commercial Interiors, the company’s commercial furniture business, saw 1.6% boost for the stock last Friday, helping take back some of the losses the store had seen at the start of May, whilst the company is continuing to downsize its corporate offices in Minneapolis, with another 100 job cuts to come. All of this action has analysts forecasting earnings per share of $1.02, roughly a 46% increase year-on-year, with less robust growth in revenue, up only 0.2% to $17.08 billion. This has led Target Corp to receive a consensus rating of ‘hold’ with an average target price of $66.86.

Office supply chain Staples Inc has had a similar market performance to Target in the last 12 months. A disappointing performance for much of 2014 eventually turned around in the final quarter, with Staples starting the year at $15.56 before ending it at $18.12 after a steep decline to $10.75 in the middle. Things have been slightly flatter for Staples in 2015 when compared to Target; a spike on February 3rd saw the stock reach a high of $19.39, growth that was almost immediately lost by the following day. The stock then steady fell to a year low of $15.71 at the start of March, before recovering slightly to a current trading price of $16.41.


(Source: IT-Finance.com 18/05/2015)

Staples is currently waiting for FTC approval for its $6.3 billion purchase of Office Depot back in February, the announcement of which was the source of both its rapid gains and its swift declines at the start of that month. Interestingly, the FTC has already failed to approve this very same deal, all the way back in 1997, so it remains to be seen which way the Federal Trade Commission will swing this time around.

In other, slightly less extravagant news, Staples announced partnerships with Bidvest Waltons and Dacris, deals that will allow Staples increased access to the South African and Romanian markets respectively; not necessarily major gains, but consolidation of Staples’ global reach. It also announced a strategic deal with the terrifyingly titled Martha Stewart Living Omnimedia company in order to manufacture and distribute Martha Stewart Home Office products; a name brand (even if that name has links to insider trading) can be a massive boost, especially one with the oddly untarnished homely nature, and star-power, of Martha Stewart.

Analysts are forecasting earnings per share of $0.17, in line with Staples’ own estimates, compared to $0.31 last quarter; granted, Staples was initially forecast to post an EPS of just $0.01, so there is still hope yet of Staples out-performing its estimates. It has also received a revenue forecast of $5.47 billion compared to $5.66 billion in its fourth quarter. The flat-ish nature of these predictions, alongside the still-pending nature of its Office Depot deal, has led analysts to give Staples a consensus rating of ‘hold’ with an average target price of $17.75.