Like most retail stocks, Target (NYSE:TGT) took a hit last week in the wake of downbeat earnings projections from fellow big-boxers Wal-Mart (NYSE:WMT) and Home Depot (NYSE:HD). But as we approach Target's first-quarter 2007 earnings date, the stock has already recovered its losses -- and then some. Will investors' optimism be rewarded come Wednesday?

What analysts say:

  • Buy, sell, or waffle? Twenty-three analysts follow Target, giving it 18 buy ratings and five holds.
  • Revenue. On average, they'll be looking for 10.5% sales growth to $14.21 billion.
  • Earnings. Profits are predicted to rise 13% to $0.71 per share.

What management says:
On May 10, Target reported pretty miserable sales results for the month of April. Total sales for the month declined 1.8%, while same-store sales in particular fell 6.1%. These numbers stand in stark contrast to the firm's year-to-date results: total sales up 9%, and same-store sales up 4.3%. They also contrast with the superb March figures that caught fellow Fool Nathan Parmelee's attention last month.

What they don't contrast with are the results posted by Target's retailing rivals -- results which Marketwatch recently described as "painfully short of targets." (Pun presumably not intended.) Wal-Mart actually beat out Target in April with a 3.5% comps decline. Limited (NYSE:LTD) did a bit better as comps fell 1%, and American Eagle (NYSE:AEO) did worse, posting a 10% slide. Meanwhile, Gap's (NYSE:GPS) comps collapsed 16% year over year -- a disaster only exceeded in magnitude by Pacific Sunwear's (NASDAQ:PSUN) 16.5% slide.

What management does:
One other difference between Target and many of its retail peers: Target's on a roll. Blips in the month-to-month sales trends notwithstanding, the firm has made a fine showing of keeping its profits rising steadily, putting together four straight quarters of improving rolling gross margins and three quarters of operational improvement, and all the while maintaining at least a 4.6% net.

Margin

10/05

1/06

4/06

7/06

10/06

2/07

Gross

32.1%

32.1%

32.2%

32.4%

32.5%

32.6%

Operating

8.1%

8.3%

8.2%

8.3%

8.4%

8.7%

Net

4.5%

4.6%

4.6%

4.6%

4.6%

4.7%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Like Target's income statement? Then you're going to love its balance sheet. As sales grew 14% on average in the second half of last year, the company kept accounts receivable to just 9% growth and held inventories to just a 5% expansion. This company maintains superb control over its bill collection and stockroom, and it looks well-positioned to weather a sales slowdown if April's numbers prove indicative of what's to come later this year.

And if sales pick back up? Why, then we can see more of the 21% year-over-year improvement in free cash flow that Target generated in the last half of last year. That's a Target worth aiming for.

For related Foolishness, draw a bead on:

American Eagle, Gap, and Pacific Sunwear are all Stock Advisor picks. You can get the latest recommendations from the Gardner brothers free for 30 days.

Wal-Mart, Gap, and Home Depot are Inside Value selections. Limited is an Income Investor recommendation.

Fool contributor Rich Smith owns shares of American Eagle Outfitters. The Fool has a disclosure policy.