Target Corporation (NYSE:TGT) has long been defined as an alternative to archrival Wal-Mart Stores, Inc (NYSE:WMT) in the discount retailing world. However, the rise of e-commerce from the likes of Amazon.com, Inc. (NASDAQ:AMZN) presented a new and challenging level of competition.
Now, with the company’s increased presence in the online space and the reversal of sales declines, TGT stock may be poised for a comeback.
Target, the second-largest discount retailer in the United States, began as a division of the Dayton Company (later the Dayton-Hudson Corporation). The first Target opened in 1962 in Roseville, Minnesota.
Target Has a Long History of Growth
In time, Target became Dayton-Hudson’s largest division. The company began a nationwide expansion in the 1980s. Eventually, the company renamed itself the Target Corporation in 2000 and divested its other retail stores by 2004. Today, it operates over 1,800 stores in the United States.
As discount retailing increased in popularity, Target and archrival Walmart emerged as the nation’s largest retailers. Companies such as J C Penney Company, Inc. (NYSE:JCP), and stores such as Sears and K-Mart (which later merged into Sears Holdings Corp (NASDAQ:SHLD)) fell behind.
Walmart and Target largely dominated discount retailing until the rise of online commerce and Amazon. At first, Target partnered with Amazon under target.com’s previous name, target.direct.
However, in 2011, with target.com attracting nearly 290 million visitors, the company decided to rebrand target.com and sell online independent of Amazon.
Target Move Past Revenue Struggles
TGT revenue levels have remained stagnant for most of the 2010s. The TGT stock price today is about $58 per share. This price is well under the $83 per share high it enjoyed early in 2016. However, this 30% drop in the stock price could serve as a good entry point for new investors.
With earnings of $4.70 per share for the 2017 fiscal year, the price-earnings ratio of TGT stands at approximately 12. That P/E ratio is less than half the average P/E of 26 for the retail industry.
Additionally, with online commerce, sales are again rising. Like Walmart, it expanded its profile in online sales. The company offers options such as drive-up, ship from store and Target Restock to better compete.
In the wake of Amazon’s Whole Foods acquisition, the company also cut prices in the face of that competitive threat. The price cut happened too recently to see the financial effects of the price cuts. However, the sales declines of recent years appear to have stopped. In the latest quarterly earnings release, the company reported that same-store sales rose 1.3%, double the consensus of 0.7%.
Look to the Company’s Growing Dividend
The company’s dividend is another benefit of the decline in the TGT stock price. The company has a 46-year record of increasing its dividend. That dividend currently stands at $2.48 per share. This amounts to a yield exceeding 4.2%. This compares well to the dividend yield of the S&P 500, which stands at just under 2%.
This high dividend yield is likely a bullish sign. In a world where bank yields are close to zero, investors could potentially buy the stock for the dividend alone. This buying could place upward pressure on the TGT stock price, especially since the divided rose every year in the past. Helping its dividend case is the fact that the company’s dividend payout ratio stands at about 53%. Hence, the company pays most of its profits to shareholders in dividends.
Target’s low PE ratio and high dividend make the stock a possibly attractive investment. Like all traditional retailers, the rise of e-commerce cut into in-store sales. However, Target responded by building its online presence and has begun to grow in-store sales levels. With the falling stock price and a dividend that risen annually for decades, a good entry point for new investors may have formed.
As of this writing, Will Healy did not own a position in any of the stocks mentioned here.
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