Stock Analysis & Ideas

Target Blasts Up with New Earnings Report Win

Popular retail chain Target (TGT) hit the bullseye with investors after a winning earnings report. Despite ongoing issues in the supply chain that have hamstrung most businesses, Target not only posted wins but delivered an upbeat forecast. I’m bullish on Target, because this chain store has been actively winning for years now and doesn’t look to stop.

The last 12 months for Target shares featured plenty of gains that were mostly lost over the course of that same 12 months. March of 2021 featured a healthy run-up as the company went from just over $171 to just over $198 in the space of one month.

Those gains were quickly followed by more. By August, the company passed the $260 per share mark. September proved a terrible month, as, by October 3, the company slid back to around $224.

Another gain followed for mid-October, and by mid-November, the company reached its 52-week high. That was the beginning of a slide that lasted mostly through February. Today, the company is trading around levels seen back in May 2021.

The latest news, Target’s earnings report, gave investors a reason to come back, and come back they did. The stock is currently up about 10% on the day. The company posted a win on earnings per share figures, coming in at $3.19 versus $2.86 expected by Refinitiv estimates.

Revenue was a very slight miss, with the company turning in $31 billion against Refinitiv’s call for $31.39 billion. The biggest win came from future projections, where Target noted that it could keep the forward momentum going despite supply chain issues plaguing nearly everybody.

Wall Street’s Take

Turning to Wall Street, Target has a Moderate Buy consensus rating. That’s based on eight Buys and five Holds assigned in the past three months. The average Target price target of $266.17 implies 19.9% upside potential.

Analyst price targets range from a low of $230 per share to a high of $305 per share.

Target an Unlikely Winner of the Retail Wars

Target’s performance over the last couple of years has been amazing. It’s also been downright unlikely. Physical retail took a beating at Amazon’s (AMZN) hands over the last several years. Many thought that online retail would forever replace physical retail outright. Given how much pressure physical retail has been under in the last decade, that may not have been outright alarmism.

Target, meanwhile, adapted to conditions in no uncertain terms. It benefited from the early days of the pandemic, being declared “essential retail” thanks to its grocery operations. That allowed people a certain vestige of normalcy that they rewarded with their business.

Moreover, Target also benefited from the stimulus checks sent to families in the early days of the COVID-19 pandemic. Target bolstered its online shopping options as well, giving shoppers options it believed were safer than going into physical stores. Further, Target also brought out expansions in the small-format store, which proved a welcome addition to college campuses and tightly-packed urban developments.

Despite all this, Target hasn’t been neglecting its main stores. The company plans to add Ulta Beauty shops to over 250 locations this year, reports note. It’s also moved to set some starting wages as high as $24 per hour, addressing concerns over paychecks not going as far as they once did. If that sounds counterproductive for investors, it’s not such a problem; Target cleared the $100 billion mark in sales for the first time ever last quarter.

Moreover, Target’s dividend history should look pretty nice for income investors. The company’s dividend has been steadily on the rise for many years, and payouts have been regular as well. There are better yields to be had, of course, and Target’s share price will likely make it inaccessible to any substantial quantity purchasing. Hedge funds, however, are buying in increasing quantities. That makes for another sound reason to get in.

Concluding Views

There’s a lot of reason to be bullish about Target. Sure, its price tag won’t encourage growth investors, despite the fact that the company is trading under its lowest price targets right now. Objectively, $221 a share for a company producing $0.90 per share in quarterly dividends isn’t a viable plan for a lot of people considering retirement. The losses of the last several months have opened a nice buy-in point, however.

Target has proven itself to be a powerful force in retail. In fact, one of the few forces in retail that can stand off Amazon. That’s no mean feat, and Target is certainly making the most of its latest gains. Target’s flexibility and resilience have served it well during the last two years.

There have been few greater tests of retail’s resilience than this period. A company that can produce growing dividends and sales figures during some of the most volatile investment times in history is worth a second look. Target is one of those firms all over.

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