Back in April, I stated that if Target (NYSE:TGT) CEO Brian Cornell and his team delivered on their plans for the company, Target stock had a good chance of hitting $100 sooner rather than later.
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Well, Target’s August 21 announcement of its second-quarter earnings was a blockbuster, sending Target stock up by 20% to close at $103, $3 clear of triple digits.
Here’s what I had to say about Target in early April:
“The company continues to grow digital sales. Up 36% in 2018, they still only account for 7.1% of its overall revenues. In five years, that number will be in double digits, perhaps even as high as 20% if Shipt, its same-day delivery service continues to gain market share…I think $100 a share for Target stock could be right around the corner. If you bought in the low $60s, I’d hang on for the ride.”
At the time, Target was trading around $80.
Now that’s it cleared $100, I’m wondering how long it will take it to reach $200.
Target Stock Hits $200 by August 2020
Target traded at $50 in July 2017. Therefore, TGT stock took 25 months to double in value. If it takes another 25 months to run to $200, it ought to double by August 2022.
However, this doesn’t take into account the momentum the discount retailer has gained in 2019.
For example, in the second quarter, Target’s digital sales grew by 34% to $1.34 billion or 7.3% of the company’s $18.4 billion in overall revenue. In the second quarter, digital sales accounted for 1.8% of the company’s 3.4% in comparable-store sales growth, likely the first time that digital comps have contributed more in terms of same-store sales growth than its brick-and-mortar locations.
But before you start worrying yourself about the fact Q2 2019’s brick-and-mortar comps were considerably lower than in the same quarter a year ago (1.5% to 4.9%), consider that Target’s comparable sales have grown 10% over the past 24 months, the company’s best two-year stack in over a decade.
The strategy CEO Brian Cornell’s implemented is working.
Grocery Improvements and Target Stock
In April, I argued that Target needed to improve its grocery business if it wanted TGT stock to keep moving higher. “In 2-3 years, investors won’t recognize the company’s grocery business,” I wrote.
Well, on August 19, Target announced the launch of Good & Gather, the company’s new grocery brand that will see more than 2,000 items offered under the brand name by the end of 2020. The company expects Good & Gather to be its highest-selling private label generating billions in annual sales.
“We’ve been hard at work [on this] for the last couple years,” said Stephanie Lundquist, head of food and beverage at Target. “Food and beverage play such an important role for Target’s business … for the Target experience.”
More and more, Target’s becoming a one-stop-shop for its customers, providing a nice boost to the top line because when someone adds at least one grocery item, the basket size is twice as large.
“Grocery is the one spot in their stores they haven’t fixed yet,” said Brian Yarbrough, an analyst at Edward Jones. “But they are in a much better spot than they were four or five years ago.”
Indeed they are.
Given grocery only accounts for 20% of Target’s business, compared to more than 50% for Walmart (NYSE:WMT), the Good & Gather private label brand could be the catalyst needed to double TGT stock over the next 12 months.
TGT Hits $200 by August 2021
Target’s timing of launching a private label in the grocery aisle is good. Consumers are opting out of manufacturer brands toward private label. In 2018, U.S. private label food sales were $153 billion, 5.5% higher than in 2017.
Young people don’t have nearly the same nostalgia for brands that have been around for a long time. I think that’s why companies such as Kraft Heinz (NASDAQ:KHC) have faltered in recent years.
While the company’s digital sales have made a push in the last couple of years, it’s Target’s grocery business that will dictate where TGT stock heads in the next 12-24 months.
“We have to be [reliable], we have to be abundant and fresh, and we have to be relevant,” Lundquist said in its announcement about Good & Gather. “We’ve taken days out of [our] supply chain. We’re getting from field to shelf way faster. … Having an end-to-end team now we can really build on the momentum we’ve gained.”
I think Cornell’s going to be successful in his move to make Target more relevant in grocery. However, the changes they’ve made and are continuing to make won’t appear on the income statement for several quarters.
Despite having a home-run second quarter, I’m not sure it will be able to string together a bunch of them. That’s especially so if we go into recession, which is looking more likely every day.
For this reason, I think it’s more likely that Target hits $200 sometime in 2021.
Either way, I believe Target is one of the better retail stocks to hold over the next 2-3 years.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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