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Target Stock Has Risen ~34% in 2018

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Sep. 4 2018, Published 1:27 p.m. ET

Strong fundamentals drove the stock

So far, Target (TGT) stock has outperformed the broader markets and its peers in 2018. Strong comps growth led by a record rise in traffic, expansion of digital fulfillment options, and benefits from lower taxes following the tax reforms are driving Target’s top and bottom-line growth. Given the company’s strong performance in the first half of 2018, the stock has increased 34.1% on a YTD (year-to-date) basis as of August 31.

In comparison, Costco (COST) and Kroger (KR) shares have risen 25.3% and 14.8% on a YTD basis, while Walmart (WMT) stock has fallen 2.9%. Will the uptrend in the Target stock continue to hold?

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Valuations

Target stock trades at 16.2x the fiscal 2018 estimated EPS of $5.40. Given the projected growth of 14.6% and a dividend yield of 2.9%, Target shares look fairly priced. However, the stock is trading at 15.5x the fiscal 2019 EPS of 5.63, which looks expensive based on the projected growth rate of 4.3% during that period.

Target will likely sustain the sales and earnings growth momentum in the second half of fiscal 2018. The improving macro backdrop, money and time-saving offerings, and holiday season are expected to drive the company’s financials. However, Target’s growth rate will likely decelerate significantly in fiscal 2019 due to tough year-over-year comps.

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