Instead of rolling over like brick-and-mortar retailers were expected to, Target (TGT) countered by investing in its e-commerce strategy and teaming up with designers for exclusive product launches. Such moves helped the discount chain turn around its earnings and boost sales.
But then the coronavirus pandemic ravaged Wall Street in early 2020, sparing few stocks. Even Target stock took a hit, despite a rush by shoppers to stockpile toilet paper, food and other supplies amid coronavirus fears.
Shares have since recovered and rallied to record highs. In fact, the retail giant’s stock recently cleared a buy point. So, is Target stock a buy right now?
Target Has Deep Roots
Though Target (TGT) has been a household name since the 1990s, the first store didn’t open until 1962, and its roots go way back to the early 1900s. In 1902, George D. Dayton became a partner in Goodfellow’s Dry Goods Company, a department store in Minneapolis. The next year, he became the sole owner and renamed it Dayton’s Dry Goods Company.
A name change to Dayton Co. followed in 1911. In 1962, the first Target store opened in Roseville, Minn., and in 1966, the first store location outside of the state opened in Denver. Target’s parent company became Dayton-Hudson after a 1969 merger with J.L. Hudson. Target expanded across the U.S. in the 1980s. And in 2000, the parent company was renamed Target.
Upside Earnings Surprise
On Nov. 18, the Minneapolis-based company trounced Wall Street targets with Q3 earnings of $2.79 a share on $22.63 billion revenue. Same-store sales leapt 20.7%, while comparable digital sales surged 155%. Customer traffic increased 4.5%, and the average ticket rose 15.6%.
“Within digital, we continued to see the strongest growth in our same-day services, pickup, drive-up and ship, which, together, grew more than 200% in the quarter,” CEO Brian Cornell said on the earnings call. “These services are fast, convenient, reliable and contactless, which explains why they continue to generate very high levels of guest satisfaction.”
Target has boosted its e-commerce capabilities to support the expected high volumes. Target uses Buy Online Pickup In Store (BOPIS), Drive Up (curbside pickup) and Shipt dellivery service to fulfill its digital orders. Pickup In Store rose more than 50%, Drive Up surged more than 500%, and Shipt soared 280%.
Target was featured in this IBD Stock Of The Day column.
Target Stock Fundamental Analysis: Growth Returns
IBD Stock Checkup assigns Target a 96 Composite Rating, which combines key fundamental and technical metrics into a single score. That means its stock has outperformed 96% of all stocks — regardless of category — over the past 12 months. It leads the major discount chain group, ahead of Costco Wholesale (COST) (71 CR) and Walmart (WMT) (52 CR).
Target’s 92 Earnings Per Share Rating, part of the overall composite score, is second in the group. It reflects a five-year earnings growth rate of 8%. It’s been a slightly bumpy ride, with earnings declines in 2015 and 2018. Analysts now expect EPS to rise 44% for the fiscal year ending this month, but slip 6% in fiscal 2022, according to FactSet.
Additionally, sales growth has hit a couple of speed bumps too, dipping in 2014 and 2017. Target’s five-year sales growth rate of 3% could improve if the retailer can meet or exceed analyst forecasts for an 18.6% jump in fiscal ’21.
An SMR Rating (sales + profit margins + return on equity) of A, on a scale of A-E with A the best, takes into account Target’s 28.5% return on equity in fiscal 2020. That was the highest ROE in at least nine years and well above the desired 17% minimum threshold for the best stocks. Pretax margin of 5.4% was the best in three years.
Target Stock Technical Analysis
Target stock on Sept. 28 cleared a 156.20 buy point of a flat base, according to MarketSmith chart analysis. It climbed 7% before pulling back along with the broader market.
The stock recovered to form a new short base with a 167.52 buy point, which it cleared on Nov. 19, following its Q3 earnings report. Shares consolidated to form a new five-week flat base with a 181.27 entry, which Target cleared Jan. 6 in heavy volume.
Thanks to its recent fundamental and technical strength, Target is an IBD Leaderboard stock.
Target’s Accumulation/Distribution Rating is a B-, which points to more recent net buying vs. selling by mutual funds. A 78 Relative Strength Rating means the discount giant’s price performance is beating 78% of all other stocks.
The relative strength line, which compares a stock’s price performance with that of the S&P 500, has turned slightly lower after reaching an all-time high.
Target’s technical action signals a buy right now. It’s pulled back into buy range after clearing the 181.27 entry in heavy volume. The buy range tops out at 190.33.
One caveat: The most recent base is third stage. Leading stocks often make their biggest runs out of first- and second-stage bases.
The market is in a confirmed uptrend, which means it’s OK to buy fundamentally sound stocks that are staging solid breakouts. Read IBD’s daily The Big Picture column for detailed insights into how Wall Street is behaving.
Also, check out IBD Stock Lists and other IBD content to find dozens more of the best stocks to buy or watch.
Follow Nancy Gondo on Twitter at @IBD_NGondo
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