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Will Target (TGT) Continue Its Illustrious Run in 2020?

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Target (TGT - Free Report) put on a show in 2019 as its stock nearly doubled after the retailer put together some robust quarters. The company outpaced fellow retailers Walmart (WMT - Free Report) and Costco (COST - Free Report) , which both had strong years as well as they rose 20% and 58%, respectively.

With the run that Target went on in 2019, investors now wonder whether the company can carry the momentum into the new year.

Banner Year

Target’s spectacular run in the previous year came as the firm’s many investments started to pay off. Some of the company’s investments included improving its omnichannel experience by offering services like same-day delivery through Shipt; in-store order pickup; and Drive Up, which allows consumers to place an order in the Target app and have the items brought out to their car. In the third quarter, same day fulfillment services drove 80% of the company’s e-commerce growth. 

The retailer also found success with its exclusive private-label brands, which helped drive traffic into stores. In Q3, comparable sales in apparel jumped 10%, which was boosted by the popularity in the private-label brands.

The company has also looked to better adapt its brick and mortar locations to the contemporary consumer landscape. In addition, Target has employed a ‘small store’ format in some areas to better reach the modern consumer.

The average Target store is about 130,000 square feet and its smaller stores, which are about a third of the size of its regular stores, have been implemented in dense urban areas. These densely populated areas would make it difficult for the company to fit a regular sized store. Out of 26 currently planned openings for 2020, only one is larger than 90,000 square feet, and the smallest is less than 12,000.

Outlook

A robust fourth quarter report would help Target get off to a strong start in 2020 so let’s take a look at how the retail giant is projected to do.

Our Q4 consensus estimates forecast for earnings to grow over 11% to $1.70 per share and for net revenue to reach $23.9 billion for a jump of 4.24%. Comparable store sales are estimated to come in at 3.93% in the fourth quarter.

Our fiscal 2020 consensus estimates project a bottom-line hike of 18.4% to $6.38 per share and a top-line increase of 4.36% to $78.6 billion. Comparable store sales are anticipated to come in at 4.08% for the fiscal year.

Target also currently boasts a dividend with a solid yield of 2.06%, which has been steadily increased for the past 52 years. With the success that the retailer saw in 2019, it is likely that Target will keep its dividend increase trend in the new year, which adds to the value of owning shares of the company.

Bottom Line

Target’s improvements to its omnichannel look poised to continue to drive traffic and results in the new year. The retailer continues to look for ways to better adapt its brick and mortar stores to the wants of the modern consumer. Despite the surge TGT shares saw in 2019, its stock trades at about 18.7X its forward earnings, which is just below the S&P 500 average of 19.1X forward earnings. This can provide a solid entry point to a stock that can potentially continue its run in the new year. Target currently sits at a Zacks Rank #1 (Strong Buy) with a Style Score of B in Value.

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