On Target

04/16/2019 5:00 am EST


James Pearce

Director of Research, Investing Daily

Three months ago, I suggested that Target (TGT) was a “wonderful company trading at an unfair price”, explains growth stock expert Jim Pearce, senior editor of Investing Daily's Personal Finance.

At that time, the stock was at $67. The stock then dropped all the way to $60 before staging a remarkable rally that has raised its share price above $80.

Driving that turnaround was strong Q4 and year-end results released by the company on March 5. Target reported a 5.3% increase in comparable sales led by a 31% jump in online sales.

Target reported its highest annual earnings per share ever of $5.39 (adjusted) compared to $4.69 last year. The company also raised its adjusted EPS guidance for this year to $5.75 to $6.05, which would amount to a 10% improvement over last year.

Most impressive is that these results have been achieved while the company has been spending heavily to transform hundreds of its stores to better compete with e-tailing giant Amazon (AMZN).

By now, it should be apparent that Target has hit upon a formula for fending off Amazon that is working quite well and has legs that will carry it into 2019 and beyond.

That being the case, how much longer before the stock market begins to treat Target with the respect it deserves instead of reacting to every successful quarter like it is a big surprise?

Target already has what Amazon wants (i.e., a national network of store locations combined with a strong online presence), and thus far none of Amazon’s small forays into creating a physical presence has yielded definitive results.

Of course, Amazon has other businesses such as AWS (Amazon Web Services) to justify its higher share price multiples. However, Target has proven that it can go toe-to-toe with Amazon in the retail space and deserves to be rewarded with higher share price multiples of its own.

Currently valued at 12 times forward earnings (compared to a multiple of 16 for the SPY), and only 0.52 times sales (versus a multiple of 2.1 for the S&P 500), TGT is a buy up to $80.

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