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Target Stock: What’s on the Horizon?

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Jun. 25 2019, Published 8:02 a.m. ET

Sales and earnings

Target (TGT) posted impressive comps in the past several quarters, which drove its top line. On average, the company’s comps have increased more than 4.7% in the past six quarters, which is encouraging. Expanding digital fulfillment options, exclusive products, and stores remodeling are driving Target’s top line.

In comparison, Walmart’s (WMT) US business had an impressive comps growth rate. Costco (COST) continues to outpace Target and Walmart with its comps growth.

We expect Target’s top line to continue to benefit from higher comps in the coming quarter. The retailer faces tough YoY comparisons, which could hurt. However, expanded delivery options are expected to support the company’s comps and sales.

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Target’s bottom line has grown at a double-digit rate in the last five quarters. We expect the trend to continue in the near term. Improved comps, cost-savings, and better e-commerce margins will likely support Target’s bottom line. Share buybacks and the lower tax rate could drive the company’s bottom line more. However, higher digital fulfillment costs could remain a drag.

Target shares trade at a lower valuation multiple than Walmart and Costco. Target offers a better dividend yield. However, the company has increased ~31% in 2019, which implies that the positives are priced in. Target is trading on par with its historical average multiple of 14.5x.

Analysts’ target price

For Target, 15 out of 26 analysts recommended a “hold,” while 11 recommended a “buy.” Analysts’ target price of $88.20 per share indicates an upside of 1.7% based on its closing price of $86.72 on June 24.

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