It has been just seven trading sessions so far in the year, and Target Corporation (TGT - Free Report) is off to a solid start. Of late, this general merchandise retailer has been one of the most talked about stocks in the Wall Street thanks to Gene Munster’s prediction of it featuring in the Amazon’s (AMZN - Free Report) buyout list and strong holiday sales amid ultra-competitive retail environment.
This Minneapolis, MN-based company has displayed a strong run in the bourses rising roughly 5% in the chart as against the S&P 500’s growth of approximately 2% so far in the year. Meanwhile, SPDR S&P Retail ETF (XRT - Free Report) has just gained a meager 0.3%.
A Brief Introspection
Target has been hogging the limelight following Munster forecast. The famous tech analyst highlighted that given “shared demographic and manageable but comprehensive store count” Target remains a perfect choice for Amazon. Munster added that if the acquisition takes place, Amazon may have to shell out $41 billion. Well this was enough to shake the retail industry, which has certainly been facing the brunt of heightened online competition, lower footfall and changing consumer spending patterns.
Nevertheless, Target emerged strong this holiday season joining the bandwagon of retailers — Kohl’s Corporation (KSS - Free Report) , J. C. Penney (JCP - Free Report) and Zumiez — who witnessed strong sales. Comparable sales rose 3.4% in the combined November/December period buoyed by healthy store comps, robust traffic and sturdy digital sales. The solid holiday numbers allowed management to lift the view. (Read: Target Joins Bandwagon, Posts Solid Holiday Sales, Ups View)
But can Target offer investors better upside in the days ahead? Here is a short analysis.
Target has taken steps that have improved prospects in a big way. The company’s initiatives such as the development of omni-channel capacities, diversification and localization of assortments along with emphasis on flexible format stores bode well. These are going to play a major role in 2018.
It has also rolled out Target Restock program that allows customers to restock their shipping box with essential items online and get them delivered at door steps by the next business day for a nominal charge. Further, in order to improve supply chain and expand delivery capabilities, the company had acquired Grand Junction.
To tap digital sales this holiday season, Target strengthened relationship with Google by allowing customers nationwide to shop through Google Express, including voice-activated shopping. Target has also made a concerted effort on the front of same-day delivery services by acquiring internet-based grocery delivery service Shipt for $550 million.
A brief glance at some valuation metrics seems to indicate that Target has enough room to run in bourses. Further a Value Score of A also indicates the same.
Target with a price to sales ratio of 0.6 compared with that of industry’s 0.8 indicate that the stock has enough upside potential. The stock also looks attractive with respect to a forward price-to-earnings (P/E) multiple of 14.7x versus industry’s 24.7x. A more-or-less similar picture emerges when comparing EV/EBITDA ratios. Target holds the edge here with an EV/EBITDA ratio of 6.7 lower than 10.5 for the industry.
We noted that this Zacks Rank #3 (Hold) stock has surged 39% in the past six months, compared with the industry’s growth of 29.1%. So investors with a long-term horizon may hold on to the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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