The Target Stock Dip Was Barely a Blip
For all the headlines it caused, the two-day outage at Target (NYSE:TGT) checkouts barely registered with investors.
Source: Mike Mozart via Flickr (Modified)
All told, TGT stock lost about 1.5% in the past two days, after thousands of people abandoned their shopping carts and just walked out of stores over the weekend.
The cash register outage came just a month after stellar earnings sent the stock shooting upward, from barely $70 per share on May 16 to nearly $90 per share a month later. The company in May said same-store sales grew 4.8% on 4.3% comparable traffic growth for the three months ending in April.
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Since then, Target has gone from strength to strength. It raised the dividend slightly, re-launched its in-house media company as Roundel, and announced same-day delivery through Shipt, a grocery delivery service acquired in 2017.
Macro vs. Micro for Target
Unlike the massive 2013 data breach that eventually cost CEO Gregg Steinhafel his job in 2016, the two-hour outage on June 14 was seen as a problem caused by regular maintenance. A second, smaller problem processing credit cards on Father’s Day was blamed on vendor NCR (NYSE:NCR).
Rather than attack Target as negligent, most analysts chose to focus on how any company could be hit by such problems, given how dependent they are on giant, interconnected computing systems. There was a sigh of relief that no Target customer data was lost.
Target’s strategy under current CEO Brian Cornell has been to match its larger rivals in technology but differentiate itself with smaller stores inside urban centers, something Walmart (NYSE:WMT) abandoned earlier in the decade.
While the fallout from the tech outage is likely to be brief, Target shares will be hit by general market turbulence. Consider that the Morgan Stanley (NYSE:MS) business conditions index is forecasting a recession ahead.
A spike in jobless claims and a bad employment report for May are far more likely to impact Target shares or rivals like Walmart and Kroger (NYSE:KR) than the weekend’s problems.
Wait for It
In general, conditions at stores like Target, once called “discount” stores, have been improving. Sales for May are up 3.2% year-over-year. While shopping malls continue to dwindle, stand-alone discounters like Target continue to rack up gains.
Historians will note that Target itself emerged from the now-defunct Dayton-Hudson department store chain. The remaining stores rebranded as Marshall Field’s and became part of what’s now Macy’s (NYSE:M) in 2005.
Target, meanwhile, has been called Walmart’s primary competitor. Even though the Arkansas-based chain is more than seven times its size, Target is more profitable. It brought $3 billion out of $75 billion in sales last year to the net income line. Compare that to $6 billion on $514 billion for Walmart. Despite this, and a dividend yielding 3.1% after its latest raise, Target currently sells for just 15 times trailing earnings. That’s less than half Walmart’s figure. Both are worth about 60 cents for each dollar of sales.
The Bottom Line on TGT Stock
The macro news is bound to overwhelm the micro news in the short term. Target’s glitch is being treated as just that and, sadly, isn’t a buying opportunity.
If the economy doesn’t collapse, Target under CEO Brian Cornell is in good shape, and a bargain for investors seeking income. If there is a recession, Target is well-positioned to get through it, but you might want to wait to see how deep the current fear goes before jumping in.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new environmental story, Bridget O’Flynn and the Bear , available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.
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