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Bull of The Day: Target (TGT)

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Target (TGT - Free Report) has been a star in the struggling retail space this year, with gains of over 88% since the beginning of the year. The company has continued to beat analysts’ growing expectations, and the stock price keeps hitting new highs with its unending rally. Analysts continue to raise EPS estimates for TGT, propelling this stock into a Zacks Rank #1 (Strong Buy).

Surviving the Retail Apocalypse

The “retail apocalypse” driven by online retail giant Amazon (AMZN - Free Report) , has been taking out brick-and-mortar storefronts across the US with more than 9,300 retail stores closing their doors in 2019. There has been a shift in the retail space, and only a few brick-and-mortar retail niches have been able to survive.

Millennials are changing the landscape in which businesses operate, with Silicon Valley leading the charge. Our world is becoming centered on the interconnected digital network we call the internet. The internet was built to hold and share data, making the transfer of data timely and seamless. Today the internet is allowing for a timely and seamless transfer of goods.

We, as millennials have grown up to recognize the importance of both convenience and value as standards of living. Target is able to hit both of those qualities. It’s easy to navigate and aesthetically pleasing floor plan combined with its discount products, not to mention its prolifically expanding online presence (7.5% of total Q3 revenue).

As the rest of the retail is close more and more of their brick-and-mortar stores, Target has been able to able to grow its store count. Its digital channel grew its sales by 31% this past quarter, which is on top of 49% growth a year prior.

Despite TGT’s massive run-up this year, it is still trading at discounted multiples to its industry, though compared to the stock 5-year forward P/E trend, it is trading at the highest end. Target’s quickly growing omnichannel offering is expected to improve the company’s topline while expanding margins, which would push its valuation further. I may wait for a pullback before putting on a sizable position.

Not only is TGT driving investor with significant share price returns but is yielding an over 2% dividend that investors can fall back on. The stock also has a .55 beta because of its discount quality, which means that it will create a slight hedge for your portfolio.

Take Away

Target is a safe investment with a sound product offering that attracts Millennials and Gen Zs, which makes it a robust long term investment, especially factoring in the 2.12% dividend. I may wait for a small pullback in share price before putting on any substantial position, considering the blazing rally this stock has had this year.

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