Target to Benefit from Strong Retail Sales

Holiday retail sales soared past prior-year totals in 2021, setting up Target Corporation (TGT) to exceed estimates and provide gains for shareholders.

Target is a brick-and-mortar retailer with locations nationwide. The company sells food, clothing, household items, furniture, and more at its 1,926 locations.

I am Bullish on TGT stock. (See Analysts’ Top Stocks on TipRanks)

Holiday Shopping to Boost the Bottom Line

Holiday sales in the U.S. soared 11% over 2019 levels. This is excellent news for retailers like Target. In-store sales alone were up 8%, while online sales increased even more.

Target has long been one of the retail establishments that could withstand the threat of e-commerce. It turns out that Target shoppers genuinely enjoy the shopping experience. Even as Amazon has flourished, Target stock outperformed Amazon stock in 2021. Target has also made significant strides in becoming an omnichannel retailer.

In Q3 2021, for instance, digital sales were up 29% over the same period in 2020. In 2020, digital sales increased a whopping 155% due to the pandemic. This is terrific news for shareholders. The company also delivered an increase in comparable sales of 12.7% and same-store comparable sales of 9.7%.

Target has pushed their in-store pickup and drive-up same-day sales to drive omnichannel sales. These initiatives drove over half of all digital sales in Q3. The Drive Up sales were particularly popular, rising 80% over the period in 2020.

By the Numbers

Revenue for Q3 came in at $25.3 billion, up 13% year-over-year and up 37% over the same quarter in 2019. Diluted earnings-per-share (EPS) were $3.04, up from $2.02 in Q3 2020.

For the full fiscal year, analysts are forecasting EPS of $13.25. If Q4 comes in above estimates, this figure could rise.

Margins were off slightly year-over-year and from Q2 2021. This is likely the result of higher costs relating to inflation, the tight labor market, and the supply-chain bottlenecks that have plagued retail in recent months. These headwinds are temporary and could begin to dissipate over the next several quarters.

Target also pays a very safe and rising dividend. The current yield is 1.56%, and the payout is $3.60 annually. The dividend payout ratio is less than 30%, and the dividend has been raised each year for over 50 years. This gives target stock the consistent payout of a bond, with the potential growth of a stock. The stock has increased in value by over 30% over the last year alone.

Despite excellent results, the stock currently trades 13.5% off its 52-week high. The stock has slipped significantly through Q4 2021 before recovering slightly in late December. The current forward price-to-earnings ratio (P/E) is 17.5x. This provides investors with an opportunity to accumulate shares at a reasonable price before Q4 earnings are released.

Wall Street’s Take

Turning to Wall Street, analysts are somewhat bullish on Target stock, with a Moderate Buy consensus. This rating is based on 10 Buys and four Hold ratings assigned in the past three months.

The average Target Corporation price target of $283.54 implies 22.4% upside potential.

Summary on Target

Retailers are in a festive mood as consumer spending has skyrocketed this holiday season over 2020 and 2019. This is excellent news for Target, whose in-store and omnichannel sales have flourished.

Target continues to pay a safe, consistent, rising dividend. Q3 saw excellent top and bottom-line figures, even with headwinds due to macroeconomic conditions. These headwinds are temporary and may be the cause of the stock’s recent pullback from highs.

The stock trades at a reasonable P/E ratio and now might be an excellent opportunity for long-term investors to accumulate shares.

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Disclosure: At the time of publication, Bradley Guichard had a position in securities mentioned in this article.