Target Is the Worst S&P 500 Stock After Earnings. Here's Why

(Image credit: Diane Macdonald / Contributor/Getty Images)

Target (TGT) is the worst S&P 500 stock Wednesday, down more than 20% at last check, after the big-box retailer came up short of top- and bottom-line expectations for its fiscal third quarter and slashed its full-year outlook.

In the three months ended November 2, Target's revenue increased 0.9% year over year to $25.7 billion, buoyed by a 0.3% increase in same-store sales. Its earnings per share (EPS) declined 11.9% from the year-ago period to $1.85.

"We saw several strengths across the business, including a 2.4% increase in traffic, nearly 11% growth in the digital channel, and continued growth in beauty and frequency categories," said Target CEO Brian Cornell in a statement. "At the same time, we encountered some unique challenges and cost pressures that impacted our bottom-line performance."

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The results fell short of analysts' expectations. Wall Street was anticipating revenue of $25.9 billion and earnings of $2.30 per share, according to Yahoo Finance.

For its fourth quarter, Target said it expects approximately flat same-store sales and EPS in the range of $1.85 to $2.45. The midpoint of its earnings-per-share forecast, $2.15, came in significantly below the $2.62 per share analysts were calling for.

For the full fiscal year, Target said it now expects earnings per share to arrive between $8.30 to $8.90, down from its previous forecast for earnings of $9 to $9.70.

"Looking ahead, our team is energized and ready to deliver the unique combination of newness and value that holiday shoppers can only find at Target, and we remain confident in the underlying strength and fundamentals of our business, and our ability to deliver on our longer-term financial goals," Cornell said.

Is Target stock a buy, sell or hold?

Heading into Wednesday's session, Target was already lagging the broad market Wall Street is bullish on the big box retailer – up 12% for the year to date on a total return basis (price change plus dividends) vs the S&P 500's 26% gain. But Wall Street was keeping the faith on the consumer staples stock.

According to S&P Global Market Intelligence, the average analyst target price for TGT stock is $173.13, representing implied upside of nearly 12% to its October 19 close. Additionally, the consensus recommendation is Buy. Price-target reductions and/or downgrades could come down the pike following the dismal earnings report.

Financial services firm Oppenheimer is is standing firm on its Outperform rating (equivalent to a Buy) and $156 price target – and thinks that investors should buy the dip on the large-cap stock.

"Earlier this morning, Target reported softer-than-expected third-quarter results. As we telegraphed in our preview, we expected a material comp and earnings shortfall vs Street forecasts, but this was deeper than we anticipated on the bottom line," says Oppenheimer analyst Rupesh Parikh.

"For longer-term players, we would take advantage of the dip this morning," he adds. "The pullback is much greater than we envisioned with our preview where we viewed downside in the mid-$130s/low $140s."

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Joey Solitro is a freelance financial journalist at Kiplinger with more than a decade of experience. A longtime equity analyst, Joey has covered a range of industries for media outlets including The Motley Fool, Seeking Alpha, Market Realist, and TipRanks. Joey holds a bachelor's degree in business administration.