TGT

Target Corporation

150.42
USD
2.46%
150.42
USD
2.46%
138.58 268.98
52 weeks
52 weeks

Mkt Cap 73.41B

Shares Out 488.04M

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Is Target About to Enter a Slump?

Target (NYSE: TGT) stock got clobbered on Wednesday after releasing a less than spectacular earnings report. The sell-off, though, wasn't only due to a quarter that's already passed; it highlights fears about how ongoing issues, specifically inflation, will affect the company -- and retailers generally -- in the near future. Target stock sank 25% after the release. Are investors in for a Target slump? The pandemic is over for Target The pandemic definitely isn't over, but Target's fabulous growth over the past two years has come to a screeching halt. Sales increased 4% year over year in the fiscal 2022 first quarter (ended April 30), including a 3.3% increase in same-store sales. In addition that deceleration, profitability was also highly pressured. Earnings per share (EPS) almost halved from $4.17 last year to $2.16 this year. Meanwhile, Target's operating margin of 5.3% was well below expectations for 8% or higher. In all fairness, the year-over-year comparison was particularly hard for Target to match. 2021 EPS was a spectacular 643% larger than the 2020 number of $0.56, and also included a $0.53 per share gain on the sale of Dermstore. The operating margin was 9.8% last year compared with 2.4% in 2020. That doesn't mean Target is off the hook. Investors had priced maintaining and improving performance into its stock, and they've now reevaluated that assumption. Was management caught off guard? To some degree, yes. CEO Brian Cornell cited a "combination of factors that proved to be very different than expected," including a "much higher than expected rate in transportation costs and a more dramatic change in our sales mix" than the company anticipated. Then there was inflation. That hurt the company on two sides: rising costs from suppliers and transportation, and cuts in consumer spending on bigger-ticket items. Management knew these things were happening, as you might expect, but the extent was faster and more dramatic than it realized. It resulted in excess inventory, especially bulky items, and lower margins. That was also due to the company staying away from cutting its own costs where it mattered. Chief Growth Officer Christina Hennington said: "In the first quarter, we invested in delivering a great guest experience to build and maintain the trust and love for the Target brand." While an obvious solution is raising its own prices, Target is trying to avoid that to maintain its value-driven mission and generate customer loyalty. Cornell said: "While we're not happy about the near-term pressure this causes on the profit line, we strongly believe these decisions will benefit our business over time." This echoes what CEO Andy Jassy said about Amazon's slowdown, and Walmart is in a similar boat as well. Cheap price, high dividend yield Target stock typically trades at a fairly cheap valuation, and at this price, it looks like quite the deal at only 11 times trailing 12-month earnings. Even better, at this price, Target's dividend yields 2.2%. Target's problems won't be over tomorrow, but it has created a winning model that should carry it through in the long run. Even as it leads the market plunge, it has outperformed the broader market by almost threefold over the last five years. Target might be in for a bit of a slump in the near term. But it has the tools to continue beating the market, and if you have some patience, it looks like a compelling stock to buy at this price. 10 stocks we like better than Target When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* They just revealed what they believe are the ten best stocks for investors to buy right now... and Target wasn't one of them! That's right -- they think these 10 stocks are even better buys. *Stock Advisor returns as of April 27, 2022 John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

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