Target is Finally Starting to Win Again
Target shares are up 4.5% today, and for good measure: the big box retailer is starting to grow its sales again. The company released its full-year earnings pre-market and beat on basically every metric.
Here are the top highlights from the report:
Full year comparable sales up 5%, the highest number since 2005.
Digital sales up 36% in 2018, the fifth consecutive year of growth of 25% or higher.
Returned $3.4 billion to shareholders in dividends and repurchases in 2018.
I wrote a piece a few months ago outlining why I thought Target stock would outperform Amazon over the next five years. This report makes me even more confident in that prediction. The strategic investments Target started making a few years ago are finally paying off and should provide a tailwind for the stock over the next decade.
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Why I Love Target Stock
There are 3 big reasons why I think Target is one of the most undervalued company’s on the market:
With a 12.5 P/E, a fat dividend (3.5% yield), and a share repurchase plan, Target has one of the lowest valuations in the retail space. Its three biggest competitors (Costco, Wal-Mart, Amazon) have a forward P/E of 26, 19, and 42, respectively.
One advantage Target has over e-commerce players like Amazon is their store base, and they are finally starting to take use it. Curbside pick-up has been huge for the retailer as they try and integrate the online and offline world. They mentioned on the conference call how many customers still don’t know about the service, and that they would be continuing to try and expand awareness of it.
Shipt is a same-day delivery service that Target acquired in 2017 for $550 million, and they have big plans for the platform. The service is in 1500 stores now, providing Target with another weapon as they fight for digital relevancy.
It took forever, but Target is finally ready to tackle the modern retail world. Wall Street is still not paying much attention to the stock, something that could be a huge advantage for long-term owners. If they can repeat what they did in fiscal 2018 for the next five years, I believe shareholders will be very, very happy.
Disclosure: The author is not a financial adviser, and may have an interest in the companies discussed.