Hit the Bullseye With Target Corporation (TGT)

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The death of brick-and-mortar retail at the hands of e-commerce may be greatly exaggerated by the media. The truth is, many Americans continue to visit their local malls and neighborhood centers to get their shopping fixes.

target earnings, tgt, target stock, tgt stockAnd that includes spending some big bucks at Target (TGT).

The general mass merchandiser continues to execute on its turnaround plan enacted after its 2014 data breach — a plan that has already paid some big benefits for Target stock investors, including continuing the firm’s history of hefty dividend growth.

Here’s a closer look at why Target stock is worth buying today.

Reinventing TGT

The classic battle in American discount retail for years has pit behemoth Walmart (WMT) against hipper upstart Target (TGT). And it seemed like the cooler Target was taking WMT to school. Then it made two terrible and costly errors: not providing better data security and expanding into Canada. Well, a few firings later and it seems that Target stock may finally be getting its mojo back.

Since hiring CEO Brian Cornell, TGT has undergone a huge transformation to get itself back to being the hip, trendy retailer. This transformation has finally begun to bear some serious fruit for investors.

For starters, Cornell has taken the axe to TGT’s top brass. Aside from potentially punishing those responsible for the data breach, the idea was to “refresh” those in charge of company decisions. Target has been known for hiring and promoting from within. However, under former CEO Gregg Steinhafel, many of the ideas that allowed Target to become the “cheap chic” retailer had stagnated.

Over the last year or so, Cornell has replaced Target’s CIO, CFO and COO at the firm. More recently, Cornell has made several hirings and firings among the key store-related positions. Target hired a new vice president of visual merchandising from trendy retailer Express (EXPR), as well as Gap Inc.’s (GPS) former head of merchandising as a senior vice president of apparel and accessories.

These hires will help TGT regain its past glory in former category-leading businesses such as women’s, men’s and kids’ apparel, as well as its booming baby business.

Target Stock Goes High-Tech

To supplement those product refreshes, Target has renewed its focus on technology and e-commerce. Rather than succumb to the pressures of online retailers, Target has begun to successfully integrate its in-store and online experiences. Last quarter, TGT saw its online sales grow at 20%, while the firm is now using around 500 or so of it stores as delivery hubs to expedite delivery of online orders.

Shopping tech has also played its part. TGT has had great success with its Cartwheel app and more recently has installed data “pucks” at 50 test stores. These devices help deliver personal offers to shopper’s smart-phones while in-store. The key is that some of these offers can be used later online.

The firm has also explored the creation of its own “Mobile Wallet.” The ability to pay with a tap helps drive ease of use for returning customers and can be combined with Target’s full in-store/online experience.

As for the stores themselves, Cornell has been attacking them with the same vigor.

Target made headlines last year when it exited its badly struggling Canadian operations. Here in the U.S., TGT has been moving large suburban stores to smaller, urban stores located in cities. These City Targets focus on younger, more affluent consumers —  exactly the kind of demographic that likes mobile tech and hip fashion.

These turnaround efforts seem to be working, as TGT has managed to reverse course and realize three consecutive quarters of same-store sales growth.

Time to Buy Target Stock

TGT’s future hinges on revisiting its past. Cornell seems to get that. The idea isn’t to compete with Walmart on price, but to go after a more up-to-the-minute style and win in certain product categories.

So far, his efforts to do that have been successful. You can’t argue with rising same-store sales growth, especially considering most brick-and-mortar retailers have continued to see declines.

There is no reason why TGT shouldn’t continue executing on these plans. Costs relating to the date breach have been mostly settled, while this time around, a recession won’t have the retailer changing its product mix. Staying the course with relatively affluent customers will bear fruit.

Now is the time to buy Target stock. After declining along with the broad market by around 20% from its highs, Target stock now yields a juicy 3.1% and trades for a forward price-to-earnings ratio of 13. That’s dirt-cheap, especially given that turnaround is working and average analyst price recommendations for the retailer are in the $80 to $90 per share range (around 15% higher than the current price of Target stock.)

Add in TGT’s continued history of dividend growth — which will be strengthened by rising sales and cash flows from its efforts — and you have a recipe for retail and portfolio success.

As of this writing, Aaron Levitt was long TGT.

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Aaron Levitt is an investment journalist living in Ohio. With nearly two decades of experience, his work appears in several high-profile publications in both print and on the web. Also likes a good Reuben sandwich. Follow his picks and pans on Twitter at @AaronLevitt.


Article printed from InvestorPlace Media, https://investorplace.com/2016/02/target-stock-tgt-bullseye/.

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