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Why Did Target Stock Fall?

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May. 6 2019, Published 8:08 a.m. ET

Target’s stock performance

Target (TGT) shares have fallen 8.4% since April 24, which reflects more competitive activity and analysts’ downgrade. Most of the decline followed Amazon’s (AMZN) announcement about reducing its delivery time to one day from two-day delivery for its Prime members. Bernstein downgraded Target to “market perform” from “outperform,” which pressured the stock.

On a YTD (year-to-date) basis, Target stock has risen 14.9%. The recent selling pressure erased a significant portion of the gains in the past seven trading days. Walmart (WMT) and Costco (COST) shares have risen 9.6% and 20.1%, respectively, on a YTD basis, due to the continued momentum in comparable sales. So far, Kroger stock has fallen 6.4% this year.

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Attractive valuation

Target stock looks attractive on the valuation front, especially given the continued momentum in comparable sales and the high-single-digit earnings growth outlook. Target stock trades at a forward PE ratio of 13.0x, which is ~12% lower than its historical average multiple of 14.8x. Target stock offers a dividend yield of 3.3%. However, margin headwinds could restrict the upside in the stock.

In comparison, Walmart and Costco stock trade at forward PE ratios of 21.5x and 30.1x—significantly higher than Target stock.

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