Top Picks 2019: Target (TGT)

01/07/2019 5:00 am EST


Chris Quigley

Contributing Editor, The Prudent Speculator

General merchandise discount store chain Target (TGT) earned $1.09 per share in fiscal Q3 2019 (vs. $1.12 est.) and had sales of $17.6 billion (vs. $17.7 billion estimate), notes Chris Quigley, a value investor and contributing editor to The Prudent Speculator.

Shares have gotten crushed since September, pulled down by broad market declines despite Target’s success with remodeled and small-footprint stores.

CEO Brian Cornell remarked, “On top of comparable sales, new stores contributed more than 0.5 percentage point to our third quarter sales growth. This growth is being driven by new small format locations that were opening in dense urban settings and near college campuses across the country. We refer to these stores as small, because of their square footage, but they really punch above their weight because of their high sales productivity…we see the benefit of all the strategic initiatives we’re pursuing, including our remodel program, efforts to rejuvenate our portfolio of own and exclusive brands and the rollout of new fulfillment options focused on delivering ease and convenience.”

While the company has not yet offered fiscal 2020 financial guidance, the company reaffirmed the EPS guidance range of $5.30 to $5.50 for fiscal 2019 (Fourth quarter results announcement is tentatively scheduled for March 5th).

The retailer returned $800 million to shareholders in the quarter via share repurchases and dividends; and expects to continue to make elevated levels of capital expenditures.

While we expect there to be no shortage of competitive and geopolitical headwinds in the future, we think that Target’s strong balance sheet, small stores and large investments in its multi-channel sales network should help solidify its foundation for the future.

We think Target shares are highly discounted, trading for just 11.5 times forward earnings and offer a quarterly dividend of $0.64 per share, resulting in a solid yield of 3.9%.

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