Right on Target: Put this in your basket

Ticker: TGT
Sector: Consumer Defensive
Industry: Discount Retailer
Headquartered: Minnesota, USA
Moat: Narrow – Brand, Scale

Action at date of this post

Accumulate as of 04.20.2024
This is technically a buy opinion. Accumulate means if you are an investor that buys periodically then keep buying. If you do not own it, but are looking to buy, this is an indication to open a position of no more than 25% of your intended, total position then accumulate shares over a set time frame.

Fair Value Analysis

I do a fair value analysis on every stock in two ways. The first is the Discounted Cash Flow (DCF) method which I use for most stocks. I also run the Peter Lynch Fair Value method on stocks as well. I like running both as there are times where one way is more meaningful than the other depending on the stock.

Target Corporate Overview

Target Corporation, a leading American retail giant founded in 1902, has established itself as a powerhouse in the retail industry. With its headquarters in Minneapolis, Minnesota, Target operates over 1,900 stores across the United States, catering to diverse consumer needs. The company’s core offerings span across various categories, including apparel, home goods, electronics, groceries, and more. Target has successfully differentiated itself through its emphasis on quality, affordability, and a curated shopping experience.

Strategically, Target has embraced omnichannel retailing, seamlessly integrating its physical stores with robust e-commerce capabilities, enhancing customer convenience and satisfaction. The company has also invested significantly in technological innovations and data analytics to personalize customer experiences and optimize operational efficiency.

Target’s commitment to corporate responsibility and sustainability further enhances its brand reputation, fostering long-term customer loyalty and shareholder value. Amidst a competitive retail landscape, Target continues to demonstrate resilience and adaptability, positioning itself for sustained growth and value creation in the retail sector.

Target Segment Analysis

Target reports as one segment but it does track revenue by categories. Those are: Apparel & Accessories, Food & Beverage, Home Furnishings & Decor, Beauty & Household Essentials, and Hardlines. For fiscal year end 2022 the numbers were as follows:

Target Moat Source

It’s hard to assign a moat to retailers but, companies like Target and Walmart have built their way into the American shopping regimen. Target’s narrow moat stems from brand and it’s scale. I might also give it a moat based on it’s size and locations. The company has been smart and strategic about it’s physical footprints and locations.

Target Growth Outlook

Not every company shows up in my research universe because it’s a barn burning growth story. At it’s core, Target is a seller of consumer staples that finds a way to turn a profit on a lot of relatively small sales. Since the latest CEO, Brian Cornell, took the helm the company has turned the ship from being a wayward participant in the US economy. Today, Target is focused on delivering a pleasant shopping experience with trendy goods, staples and food.

Of late the focus has been on driving cost efficiency through its supply chain, renovating stores and building its omni channel presence. The last piece is the most exciting part of the turnaround. The company has turned its stores into hubs. This means that online orders are often filled by your local store which means faster more accurate deliveries. Consider that 75% of the us population lives within 10 miles of a Target store. Hence, my opinion that the company has a narrow moat just on the fact that its close to us all and maintains a favorable brand. The hub strategy has led the company to increasing digital sales four fold since 2018.

Target is not shy (proud of) the fact that it’s focus is more affluent shoppers. This upscale and trendy branding has helped the company in rough economic times as it’s customers are more fiscally stout. Then there is the fact that the company is a dividend aristocrat that has increased its dividend for more than 50 years in a row.

The Numbers

The numbers for Target have turned the corner after working off excess inventory in the post pandemic year 2022. The company is back on track and seeing numbers moving in the right direction. After seeing margins contract, the corporate changes and strategy initiatives are starting to pay off. Even with its struggles, the company has solid ROIC and ROCE. Target has not had a problem making a return above its cost of capital which is impressive given the challenges it faced.

This website and associated newsletter along with its content/links are not financial advice. Nothing in this newsletter is an investment recommendation. All content is created for entertainment, educational, or informational purposes only. My strong buy, accumulate, hold, reduce or sell opinions are exactly that – opinions. Be sure to do your own research for your own particular circumstances or higher a professional advisor.

At the time of writing this post, the author does have a position in TGT.