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What’s Target’s Valuation?

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Valuation summary

Target (TGT) stock got a significant boost from its first-quarter earnings and is up 17.4% on a YTD basis as of May 22. Despite the rise, Target stock still trades at a significant discount when compared to peers including Walmart (WMT) and Costco (COST).

Target trades at a forward PE multiple of 12.9x, which is about 9% lower than its four-year average historical multiple of 14.2x. Analysts expect Target’s bottom line to grow at a brisk pace in fiscal 2019, which in turn, is likely to support its stock. Also, Target offers a dividend yield of 3.3%, which is impressive.

In comparison, Costco and Walmart trade at forward PE multiples of 30.7x and 21.0x, respectively. Target stock is trading at a discount of 58% and 38% when compared to the forward PE multiples of Costco and Walmart.

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Growth likely to continue

Target is expected to maintain momentum in comps, which is expected to set the direction for its stock. Store remodeling and expansion of digital offerings is likely to drive traffic, and in turn, comps. Moreover, Target’s focus on generating higher e-commerce margins, lower per unit digital fulfillment costs, and cost savings are expected to cushion margins, which is positive.

Growth in comps, less pressure on margins, and share buybacks are expected to drive high-single-digit growth in its EPS.

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