It has been over a year, but growth finally appears to be back at Target(NYSE: TGT). That was the biggest takeaway from the retail giant's early March earnings update which included other encouraging signs around demand and profit trends.
Target isn't out of its slump just yet. Management is simply calling for a return to comparable-store sales growth in 2024 following last year's decline. Peers like Walmart(NYSE: WMT) and Costco Wholesale(NASDAQ: COST) are expanding much more quickly, too.
Yet there are some good reasons to be feeling bullish on Target stock right now. Let's dive right in.
Target is stepping toward growth
Investors won't be thrilled by the headline growth number that Target just reported. Comps were down 4% in the key holiday shopping period, executives revealed on March 5. That result stacks up poorly against Walmart and Costco, which are expanding at a solid 3%-4% clip in the U.S. market. And Target reported declining customer traffic and lower spending, reflecting its exposure to the type of consumer discretionary purchases that shoppers are avoiding right now.
Look a bit closer at the report, though, and you'll see why Wall Street was pleased by the data. Target's customer traffic losses improved to below 2% from over 4% in the prior quarter. It nearly returned to growth in the digital sales channel following a 5% drop in Q3. The chain's holiday focus on innovation and affordability paid off and allowed sales to outpace the market in niches like toys and food. "[W]e rallied to change our business momentum," management said.
Operating margin has already recovered
Investors can immediately start benefiting from Target's financial strength while they wait for that growth rebound to take shape. The chain's operating margin already expanded to 6% of sales in late 2023 compared to 4% of sales a year earlier, effectively returning the business to the level of profitability that shareholders enjoyed before the pandemic volatility.
Sure, margins aren't approaching the 10% level that investors saw during parts of 2021. But that spike was clearly an aberration. For now, it appears Target will settle at a higher margin than national retailing peers like Costco.
Values and prices
And yet the stock is still valued as if its business won't recover its positive momentum anytime soon. Shares are trading for 0.75 times sales, or about the same premium that's been assigned to Walmart, which is less profitable. Investors were paying 1.5 times sales for Target at the 2021 peak and closer to 1 times sales before the pandemic struck.
That's a tempting discount for a business that should be setting sales and earnings records by late 2024. Cautious investors might want to wait until midyear when there will be more concrete signs that Target is on the rebound. But if you're OK with a bit more risk and are a fan of dividend stocks with long track records of growth, then consider adding Target to your watch list today. Its yield is sitting at 2.6% even following the recent share-price spike, making it one of the most generous retailers on that key metric. This income should help boost returns while you wait for business trends to accelerate in 2024 and beyond.
Should you invest $1,000 in Target right now?
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Demitri Kalogeropoulos has positions in Costco Wholesale. The Motley Fool has positions in and recommends Costco Wholesale, Target, and Walmart. The Motley Fool has a disclosure policy.
Time to Buy Target Stock? It has been over a year, but growth finally appears to be back at Target (NYSE: TGT). That was the biggest takeaway from the retail giant's early March earnings update which included other encouraging signs around demand and profit trends.
The highest analyst price target is $210.00 ,the lowest forecast is $153.00. The average price target represents 3.62% Increase from the current price of $177.21. Target's analyst rating consensus is a Moderate Buy. This is based on the ratings of 30 Wall Streets Analysts.
Target isn't out of its slump just yet. Management is simply calling for a return to comparable-store sales growth in 2024 following last year's decline. Peers like Walmart (NYSE: WMT) and Costco Wholesale (NASDAQ: COST) are expanding much more quickly, too.
Target is forecast to grow earnings and revenue by 6.3% and 2.6% per annum respectively. EPS is expected to grow by 7.3% per annum. Return on equity is forecast to be 30.5% in 3 years.
Based on short-term price targets offered by 28 analysts, the average price target for Target comes to $183.61. The forecasts range from a low of $134.00 to a high of $220.00. The average price target represents an increase of 6.89% from the last closing price of $171.77.
TGT is a #3 (Hold) on the Zacks Rank, with a VGM Score of A. It also boasts a Value Style Score of A thanks to attractive valuation metrics like a forward P/E ratio of 18.93; value investors should take notice. 12 analysts revised their earnings estimate upwards in the last 60 days for fiscal 2025.
From strength to strength. With moves like that, Target is continuing to add to its considerable strengths. Analysts are collectively modeling a 5% rise in per-share net income in 2024, then a 12% leap in 2025. Zooming ahead further in time, the five year PEG ratio is a still-low 1.3 just now.
The company runs one of the busiest and most successful retail networks in the country, and a recent recovery from certain post-pandemic managerial stumbles has made its stock popular again.
Operating income dollars grew by nearly $2 billion compared with 2022, well-above expectations. The Company's efficiency efforts delivered savings of more than $500 million in 2023.
Target introduced its earnings outlook for 2024 of adjusted earnings between $8.60 to $9.60 per share. The midpoint of that range was largely in line with analysts' expectations of $9.14 per share, according to LSEG data.
Our fair value estimate implies a forward 2024 adjusted price/earnings ratio of 15.6 times and enterprise value/adjusted EBITDA of 8.8 times. We expect fiscal 2023 and 2024 to be choppy as economic uncertainty and persistent inflationary headwinds pinch consumer wallets.
Key Points. Target trailed peers last year as shoppers shifted spending away from consumer discretionary categories. Shares will appeal to patient investors willing to wait for growth to speed back up by late 2024.
Target has strategically charted a comprehensive course to fortify its market presence and elevate sales performance. This includes a substantial investment of approximately $4-$5 billion in fiscal 2023, allocated toward scaling operations, attracting new customers, and optimizing services and supply-chain facilities.
Largest shareholders include Vanguard Group Inc, State Street Corp, BlackRock Inc., Capital World Investors, VTSMX - Vanguard Total Stock Market Index Fund Investor Shares, VFINX - Vanguard 500 Index Fund Investor Shares, Massachusetts Financial Services Co /ma/, Franklin Resources Inc, Wells Fargo & Company/mn, and ...
Largest shareholders include Vanguard Group Inc, State Street Corp, BlackRock Inc., Capital World Investors, VTSMX - Vanguard Total Stock Market Index Fund Investor Shares, VFINX - Vanguard 500 Index Fund Investor Shares, Massachusetts Financial Services Co /ma/, Franklin Resources Inc, Wells Fargo & Company/mn, and ...
If prices are on their way up, now could be a fantastic time to buy. But if you invest now and the market dips, your portfolio might immediately lose value. The good news, though, is that your timing may not matter as much as you think.
Introduction: My name is Neely Ledner, I am a bright, determined, beautiful, adventurous, adventurous, spotless, calm person who loves writing and wants to share my knowledge and understanding with you.
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