Why You Will Regret Missing Out on Target
- By Harsh Jain
Shares of Target Corp. (TGT) were almost flat last year, but the stock has taken a hard hit this year as it reached a multiyear low in June. The stock has displayed strong signs of upward momentum since then, but is still down nearly 22% year to date.
Target reported impressive second-quarter results on Aug. 16. For the quarter, the retailer posted earnings per share of $1.23, beating estimates by four cents. Revenue came in at $16.43 billion, again beating expectations by $130 million and increasing 1.6% year over year.
Warning! GuruFocus has detected 2 Warning Signs with TGT. Click here to check it out.
The intrinsic value of TGT
After reporting negative revenue growth for the past six quarters, the company finally managed to report positive revenue growth in the most recent quarter, signifying it is heading in the right direction.
Moreover, the retailer also raised its full-year earnings guidance to between $4.34 and $4.54, up from its prior guidance of $3.80 to $4.20. The revised guidance throws light on the company's confidence in the continued near-term growth of its business. Same-store sales surged 1.3%, almost double the expected 0.7% growth, due to higher traffic. As a result of its performance, the company's stock price is up nearly 4%.
Another important thing to notice is Target's comparable digital sales jumped 32% during the second quarter, which suggests it is making progress in its e-commerce efforts. However, its net income plunged to $672 million, a decline of $8 million compared to the year-ago quarter. The company is making substantial investments to grow its online presence.
It also remains focused on its plans to invest over $7 billion over the next three years in order to meet customer preferences. Recently, the company announced it has agreed to acquire Grand Junction, a transportation technology company, to enhance and magnify its delivery capabilities. The acquisition will also speed up its investments and ongoing efforts to transform its supply chain.
On the other hand, the retailer continues to allocate capital to shareholders. In the previous quarter, it paid approximately $331 million in total dividends and repurchased $296 million worth of shares.
Summing up
While Target is not moving upward at a rapid pace, it continues to perform well. With more shoppers coming back to its brick-and-mortar stores and escalating purchases on its website, the company raised its outlook for the full year, which suggests its turnaround efforts are making progress.
On the other hand, Target currently offers an attractive dividend yield of 4.4%. Despite offering a robust dividend yield, its payout ratio sits at 56%, suggesting it can still grow its dividend in the future. Furthermore, the stock currently trades at a price-earnings (P/E) ratio of 11, making it undervalued.
Overall, Target's cheap valuation, stunning dividend yield and growing digital sales make it a strong buy at the current market price.
Disclosure: No positions in the stocks mentioned in this article.
This article first appeared on GuruFocus.
Warning! GuruFocus has detected 2 Warning Signs with TGT. Click here to check it out.
The intrinsic value of TGT
