Target: What’s in Store for Investors

Amid cut-throat competition from Walmart (WMT) and Amazon (AMZN), Target (TGT) has successfully redefined its business, with increased emphasis on its digital channel and exclusive merchandise. I maintain a Bullish outlook on TGT stock. 

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Validating the retailer’s solid e-commerce and merchandising strategy is its growing profitability. Notably, Target’s adjusted earnings have increased from $4.69 a share in 2017 to $9.42 in 2020.

As for its key digital channel, Target’s comparable digital sales increased 10% during the last reported quarter. This growth comes on top of a 195% increase in its digital sales last year.

The continued strength in Target’s digital business is backed by its customer-centric offerings, which include same-day delivery services, in-store pickup, and most importantly, drive- up services, that has significantly grown in value. 

During the Q2 conference call, Target CEO Brian Cornell stated that “over the last two years, second-quarter sales through Drive-Up alone have increased by nearly $1.4 billion.”

Taking a note of Target’s solid e-commerce and product strategy, Ivan Feinseth of Tigress Financial said that the company is differentiating itself from its peers by advancing “its omnichannel capabilities and exclusive product offerings to enhance its customer shopping experience.” 

He added that “TGT is increasing operating efficiencies, logistics, and e-commerce capability, driving greater customer purchase frequency and increasing profitability.”

Feinseth has a Buy rating on Target stock with a price target of $320, representing 40.6% upside potential. 

As the key holiday season is approaching, Target could continue to benefit from the expansion of its e-commerce initiatives. Further, Target’s favorable sales mix (higher sales of high-margin owned products) positions it well to offset some of the headwinds from higher production and freight costs. 

It’s worth noting that the retailer announced that it would pay an additional $2 per hour to employees who take up extra shifts on pre-defined dates during this holiday season. Furthermore, Target has lowered its seasonal hiring count this year and is providing its existing employees with more working hours, amid the tight labor market. 

Overall, on TipRanks, TGT stock has an analyst rating consensus of Strong Buy, based on 14 Buys and 4 Holds. The average Target price target of $284.29 implies 25% upside potential to current levels.

Disclosure: On the date of publication, Amit Singh had no position in any of the companies discussed in this article.

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