Why the streak of earnings surprises may continue for Target (TGT)

Are you looking for a stock that has consistently beaten earnings estimates and could be well-positioned to continue that streak in the next quarterly report? Target (TGT), which belongs to the Zacks Retail – Discount Stores industry, could be a great stock to consider.

This retailer has a strong track record of beating earnings estimates, especially considering the past two reports. The average surprise for the last two quarters was 5.09%.

For the most recent quarter, Target was expected to post earnings of $2.87 per share, but instead reported earnings of $3.03 per share, representing a surprise of 5.57%. The consensus estimate for the prior quarter was $3.48 per share when it actually delivered $3.64 per share, representing a surprise of 4.60%.

Price and EPS surprise

Given this earnings history, recent estimates for Target are higher. In fact, the company’s Zacks Earnings ESP (expected surprise) is positive, which is a great sign of earnings growth, especially when you combine this metric with a nice Zacks Rank.

Our research shows that stocks with the combination of a positive Earnings ESP and a Zacks Rank #3 (Hold) or better produce a positive surprise nearly 70% of the time. In other words, if you have 10 stocks in this combination, the number of stocks that beat the consensus could be as high as seven.

The Zacks Earnings ESP compares the Most Accurate Estimates to the Zacks Consensus Estimates for the quarter; The Most Accurate Estimate is the Zacks Consensus version, which is defined in terms of change. The idea is that analysts reviewing their estimates just before an earnings release have the latest information, which could potentially be more accurate than what they and other consensus participants had previously predicted.

Target currently has an earnings ESP of +0.50%, which suggests analysts have become bullish on its near-term earnings potential. When you combine this positive Earnings ESP with the stock’s Zacks Rank #3 (Hold), it shows that another rally is likely just around the corner. The company’s next earnings report is expected to be released on March 1, 2022.

However, investors should remember that a negative earnings ESP reading does not mean a loss of earnings, but a negative value reduces the predictive power of the metric.

Many companies end up beating consensus EPS estimates, though that’s not the only reason their shares rise. Additionally, some stocks may remain stable even if they fall short of consensus estimates.

For this reason, it is very important to check a company’s earnings ESP before its quarterly release to increase the chances of success. Use our Earnings ESP filter to find the best stocks to buy or sell before they report.

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