What Will Target Stock Do Next?

With shares of Target (NYSE:TGT) trading around $72, 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:

T = Trends for a Stock’s Movement

Target operates general stores in the United States, as well as online, where it sells merchandise at discounted prices. It operates in three segments: U.S. Retail, U.S. Credit Card, and Canadian.  Target's online presence is designed to enable consumers to purchase products either online or by locating them in one of its stores with the aid of online research and location tools. Groceries, clothing, household items, and general merchandise can be found at Target, making it an efficient shopping experience for consumers throughout the nation.

For summer shoppers, Target is a key destination, according to a recent Forbes survey. Target is the No. 2 place where consumers are most likely to shop this summer, taking 8 percent of the total votes. Many retailers experience fluctuations in success, and Target is no exception. Still, Target will need to re-strategize and offer more alluring seasonal sales if it wants to better compete. Target stores will continue to be an excellent option for consumers looking for a variety of discounted items in one location.

T = Technicals on the Stock Chart are Strong

Target stock has been on a bullish run over the past couple of years. The stock has now broken out to all-time high prices, where it may spend some quality time. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Target is trading above its rising key averages, which signals neutral to bullish price action in the near term.

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Target options may help determine if investors are bullish, neutral, or bearish.

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
Target Options	18.27%	3%	1%

What does this mean? This means that investors or traders are buying a small amount of call and put options contracts as compared to the past 30 and 90 trading days.

	Put IV Skew	Call IV Skew
August Options	Flat	Average
September Options	Flat	Average

As of today, there is an average demand from call buyers or sellers, and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral to bullish over the next two months.

E = Earnings Are Improving Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Target’s stock. What do the last four quarterly earnings and year-over-year revenue growth figures for Target look like and more importantly, how did the markets like these numbers?

	2013 Q1	2012 Q4	2012 Q3	2012 Q2
Earnings Growth (Y-O-Y)	-25.96%	0.81%	17.07%	2.91%
Revenue Growth (Y-O-Y)	-0.95%	6.76%	3.21%	3.32%
Earnings Reaction	-4.01%	-1.45%	1.72%	1.76%

Target has seen improving earnings and revenue figures over most of the past four quarters. From these numbers, the markets have had mixed feelings about Target’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Target stock done relative to its peers Wal-Mart (NYSE:WMT), Costco (NASDAQ:COST), Kohl’s (NYSE:KSS), and sector?

	Target	Wal-Mart	Costco	Kohl’s	Sector
Year-to-Date Return	22.78%	13.56%	16.14%	24.97%	19.15%

Target has been a relative performance leader, year-to-date.

Conclusion

Target operates discount general stores across North America, where consumers continue to enjoy its shopping experience. The stock has been on a strong run over the past two years and is now trading at all-time high price levels. Over the past four quarters, earnings and revenue figures have been improving. However, investors in the company have had mixed feelings. Relative to its peers and sector, Target has been a year-to-date performance leader. Look for Target to continue to OUTPERFORM.