Target Stock: A Bullish Case, Explained

After listening to Target (TGT) CEO, Brian Cornell, talk during the company’s Q3 2021 earnings call, I am convinced this company has what it takes to continue moving the needle on its share price as well as the win the fight against Amazon (AMZN) in specific segments of the retail space.

Target’s plans to compete with Amazon have impressed me the most because they combined its digital presence with its physical footprint to allow shoppers to shop online and get their goods faster than Amazon can deliver them. 

During the conference call, Cornell said that these increased digital capabilities now account for over $6 billion in sales for the year. 

I am also excited about the “store within the store” concept that Target has pioneered by partnering with other companies to provide unique retail experiences in different parts of a Target location. 

These partners include Verizon (VZ), Apple (AAPL), and Ulta Beauty (ULTA). Target has seen that the retail categories that have these partnerships have the highest sales growth and total sales for the store. 

Target has also made capitalizing on these two successes key to continued growth. The company has said that it plans to double the number of “shop online and pick up at the store” parking spaces in the near term and add another 500 Apple stores within the stores over the next year. 

Target is also investing heavily to continue to tweak its app so that shoppers can quickly get what they what when and how they want to get it. 

For example, Target has added buttons that easily allow shoppers to add items they have forgotten to an order that has already been placed.  

The senior management team stressed on the earnings call that it is also focused on providing the best items that shoppers want, even when their tastes change.   

What this tells me is that the management team has not forgotten that it also needs to focus on the retail parts of retail, while building on the previously mentioned successes.

Recent Results and Dividend

Target stock has been trading between $166.82 (the 52-week low set on March 4, 2021) and $268.98 (the 52-week high set on November 16, 2021). 

Target brought in revenues of $101.99 billion over the last 12 months, with a net income of $6.78 billion. 

The company has reported third-quarter earnings of $3.03 per share, beating analyst estimates of $2.82 per share by $0.21. It has also reported $10.36 in earnings per share for the first three quarters of 2021, beating analyst estimates of $8.54 for the same period.  

Target currently pays a dividend of $0.90 per quarter for a yearly dividend yield of 1.52%.  

The dividend has also been growing every year for the past 13 years. The company has also increased the dividend by an astounding 32% in the past year. This is an incredible increase, and will put it ahead of inflation for quite some time.

With inflation at the current rate of 7%, the company will not have to raise its dividend for another four years for investors to continue to have more real value returned than in 2020. 

The company has a solid balance sheet. Target has a current ratio that is just under one, so it has enough current assets on hand to pay its bills for one year at its current burn rate. 

When I calculated the stock’s intrinsic value by modeling discounted cash flows, I pegged it at $368. 

This stock has some room to run before its market value catches up with its intrinsic value.    

Wall Street’s Take

TGT stock holds a Moderate Buy consensus rating on TipRanks, due to 11 Buys and seven Holds assigned in the past three months.

The average Target price prediction of $278.94 suggests 22.9% upside potential.

Conclusion

Based on the intrinsic value of this stock, the Wall Street analyst’s estimates, blogger estimates covering Target, I am bullish. 

I think that Target has found a winning combination by mixing its physical footprint with a digital app that will allow it to compete and beat Amazon to get goods into people’s hands faster, which will pay off in the long run.

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