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Target Corp TGT

Morningstar Rating
$134.78 +0.97 (0.72%)
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Company Report

Target Earnings: Strong Gross Margin Recovery Helps Offset Softening Consumer Demand

No-moat Target delivered solid third-quarter results as gross margin improvement outweighed the retailer’s second consecutive quarter of comparable sales declines. The firm posted $2.10 in earnings per share—surpassing its previous guidance of $1.20-$1.60—and raised the midpoint of its full-year EPS guidance by 9%. Despite the strong results, we think Target’s operating margin recovery from 2022 lows will take longer to fully materialize—we forecast a 6.0% operating margin by fiscal 2026 and a midcycle margin of 6.5%, down from 7.0% previously. Consumer spending continues to show signs of softening and while we surmise that the retailer is capable of adequately navigating a precarious holiday season, we still expect Target’s top line to be pressured through the remainder of the year and into 2024. Given our subdued sales outlook and our view that competitive angst among retailers is likely to intensify, we lower our fair value estimate by about 5% to $132 per share.

Price vs Fair Value

TGT is trading at a 2% premium.
Price
$134.79
Fair Value
$636.00
Uncertainty
Medium
1-Star Price
$976.10
5-Star Price
$81.60
Economic Moat
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Capital Allocation
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Bulls Say, Bears Say

Bulls

Given its iconic brand that attracts consumers due to its promise of a more gratifying customer experience compared with other low-cost retailers, we are confident in Target’s ability to drive recurring foot traffic.

Bears

Target lacks the scale and differentiation to drive significant market share across its product categories, since its product offerings lack a clear value proposition.

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News

Trading Information

Previous Close Price
$133.81
Day Range
$132.51134.95
52-Week Range
$102.93177.68
Bid/Ask
$134.49 / $134.85
Market Cap
$62.22 Bil
Volume/Avg
4.6 Mil / 4.9 Mil

Key Statistics

Price/Earnings (Normalized)
17.19
Price/Sales
0.58
Dividend Yield
3.23%
Dividend Yield (Forward)
3.26%
Total Yield
3.24%

Company Profile

Target serves as the nation’s sixth-largest retailer, with its strategy predicated on delivering a gratifying in-store shopping experience and a wide product assortment of trendy apparel, home goods, and household essentials at competitive prices. Target’s upscale and stylish image began to carry national merit in the 1990s—a decade in which the brand saw its top line grow threefold to almost $30 billion—and has since cemented itself as a top U.S. retailer.Today, Target operates over 1,900 stores in the United States, generates over $100 billion in sales, and fulfills over 2 billion customer orders annually. The firm’s vast physical footprint is typically concentrated in urban and suburban markets as the firm seeks to attract a more affluent consumer base.
Sector
Consumer Defensive
Industry
Discount Stores
Stock Style Box
Large Value
Total Number of Employees
440,000

Valuation

Metric
TGT
Price/Earnings (Normalized)
17.19
Price/Book Value
4.97
Price/Sales
0.58
Price/Cash Flow
8.86
Price/Earnings
TGT

Financial Strength

Metric
TGT
Quick Ratio
0.09
Current Ratio
0.86
Interest Coverage
9.69
Quick Ratio
TGT

Profitability

Metric
TGT
Return on Assets (Normalized)
7.04%
Return on Equity (Normalized)
32.61%
Return on Invested Capital (Normalized)
13.79%
Return on Assets
TGT

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