As many of you know, B&M retailers have recently been struggling, some outright failing. Im not here to tell you that Target is going back to all time highs. I am here to tell you the company is currently undervalued, and that it is worth a 6 month buy and hold.
In December 2016 Target was trading at $78 as the previous 3 quarters had been outstanding, beating guidance by .10, .11, and .21, historically they have beaten EPS guidance for the last 7 years 77% of the time, same as Walmart, and better than Amazon. Fourth quarter earnings started to come in from other B&M retailers, and they were bombing. Holiday sales have become more and more of an issue for everyday B&M stores, in fact 50% of Targets missed earnings were from Q4's. Every time a B&M retailer would report their earnings and miss for q4 2016, Target would fall dramatically. Since Target reports later than many retailers, they took a beating before they even said a word. January 18 2017, they reported Nov/Dec sales numbers and updated their guidance.. Not a good sign for Q4 2016. Feb 28th, they report and its bad. Sales down and traffic down, the important things. They had some positives like 20% online growth, continual redcard membership growth, etc, but those are just sugar on the shit show that happened in Q4. This caused a MASSIVE 32% drop in 3 months.
So why buy Target? Because its undervalued based on the fear of other retailers that arent related and ONE bad quarter. Do you see Walmart dropping 10% from the failure of sears or JCP? Nope. The closest store to Target is Walmart, they do the same thing, the only difference is quality and price. Target isnt a mall store, it has less than 30 mall locations, it sells basic goods and food that people need daily, which kss, jcp, sears, etc dont sell. Target isnt going anywhere, Amazon physically cannot construct thousands of B&M stores in a reasonable time, they have less than 100 warehouses in the US, meaning they cant even offer 2 day delivery to most Americans, their 2 day shipping actually becomes 3-4 days since order to delivery (listed on amazon support page), and you can forget about same day delivery for 95%+ of their customers. Amazon has next to 0 penetration in essentials like toilet paper, and foods, as they have 2! services that have failed trying to bring that to consumers (pantry, and fresh). And where do you think the baby boomers who are now watching their jcp, sears, etc close will go? Demographics say its certainly not online, and they have the money to spend to avoid going the the Walmart Zoo. Other retailers failing is actually GOOD for Target, Walmart, and Costco.
Target went from $78 to $55 in just 3 months. The last time it traded this low was in 2012. During premarket trading, people were buying shares at $59 after they reported earnings, but with the Trump drama the market pulled it back to a measly $55. Target has continually increased their dividends every year, and it is currently at 4.30%. They will roll out 12 new exclusive house brands in the next 2 years, their previous launch of Cat and Jack (a kids clothing line) brought in $1 billion in sales. In the Q4 report they said they would open up new smaller stores and cater to local markets, as these stores have been the most successful bring in double digit revenue increases over typical stores. They will continue to grow their online sales, will have same day delivery later this year They also are putting time between them and the 'bathroom debacle' which led to a boycott. As most of us know, boycotts never last, and Americans are becoming more open to sexual and gender equality, which Target is a leader in.
During their Q1 earnings beat by a HUGE .30, they were blunt, and said we had a great quarter but there is no high fiving done here, we want to make every quarter this good, and not have another Q4 incident. So the company is clearly not going to sit back and hope for the best, they are going to actively grow the brand and sales. In Q1 they also bought back 4.9 million shares at $61. Target also has programs they can easily cut to boost profits, for example Target gives 5% of its profits back to communities, which could be easily cut or reduced if needed. Since Q4, 3 insiders have bought stock (with their own money, not receive stock options), one increasing his position from 6,431 to 16,431 (@$54=$548,600), and the other two spending another $500k combined @$57-59/share, indicating they expect the stock to increase above $60.
My price Target for Target is $60 before Q2, as investors continue to realize the sell off was too extreme and now its undervalued. I expect Target to beat earnings again by a more modest amount and see the stock hit $64. I would NOT hold shares into Q4, like I mentioned above Target struggles to beat Q4 expectations, so its not worth the risk.
Full disclosure, I do have shares in TGT. But it's silly to think I am trying to pump and dump a multi-billion dollar company on reddit.
Submitted May 19, 2017 at 10:23AM by Put_It_All_On_Blck http://ift.tt/2q0Qyyd
