The retail industry has become a bit of a wasteland over the last few years as big-box stores struggle to keep up with the growing popularity of online shopping. However, that doesn’t mean it’s over for retailers like Target Corporation (NYSE:TGT). Instead, the shifting retail landscape has given TGT stock a chance to shine with a turnaround story that investors can get behind. The Target stock price has seen a 12% rise over the last month, begging the question — is this the beginning of a TGT rally?
TGT stock certainly has a lot going for it — a potential rally, a sizable dividend and a clear strategic plan. That being said, it certainly isn’t everyone’s first pick as the firm is in a struggling industry, has a great deal of competition and has been reporting lackluster earnings.
Three Pros to TGT Stock
Sizable Dividend Yield
TGT stock has a dividend yield of 3.1%, which makes it an appealing choice for income investors. Not only is Target stock paying out more than most of its peers, but the company has been raising its divided payments steadily for the past decade.
That means income investors can be safe in assuming that TGT will continue to hike its dividend each year. The firm also has strong cash flow — a good sign for reliable dividend payments, not to mention future growth potential.
Potential Rally
With the retail industry under a dark cloud, TGT stock has the opportunity to make a massive comeback in the coming years. A good example of this is McDonald’s Corp (NYSE:MCD), which investors abandoned when consumers began opting for healthier options. The fast-food industry was struggling, but investors who bet on the Golden Arches were rewarded as the firm has more than doubled its share price over the last 10 years.
Target stock may not have such a sizable rally coming, but if the firm can come out on top while the industry is under pressure, it may be a good pick.
Clear Path Forward
Although Target is certainly wedged into a very crowded industry, the firm has proven that it is adaptable and innovative. TGT has a clear strategic plan that focuses on profitable segments and remaining relevant in the future. The company’s efforts to build out its online offerings have paid off with digital sales improving by 26% last quarter. The firm is also rolling out a line of flexible format stores in urban areas. The new stores mark Target’s first departure from its typical big-box approach and are likely to reach new segments of the population.
Three Cons to TGT Stock
Retail Is Gloomy
The retail industry has been under a lot of pressure recently as the e-commerce space grew and snapped up marketshare. Retailers have been forced to beef up their online offerings in order to compete with the likes of Amazon.com, Inc. (NASDAQ:AMZN). Not only are retailers wrestling with a shift toward online shopping, but they are also at the mercy of the wider economy.
There has been a lot of uncertainty regarding the U.S. economy over the last few months as the political tides have shifted. Many are worried that we could see a pullback in the coming years, which may cause consumers to tighten their purse strings — something that would hurt the retail industry considerably.
Competition Is Fierce
Target is fending off competition from all angles at the moment, which is putting the firm under a great deal of pressure. The firm’s online offerings, which have improved significantly over the last few years, still have Amazon to worry about.
When it comes to cost, TGT is up against Wal-Mart Stores, Inc. (NYSE:WMT). The firm has been struggling with its grocery division, which is up against everyone from online offerings at Amazon to traditional grocers like Kroger Co (NYSE:KR) to specialty stores like Whole Foods Market, Inc. (NASDAQ:WFM).
The Numbers Don’t Lie
There is one big, dark cloud hanging over the positivity surrounding target stock, and that is the company’s financial results. TGT has seen its sales slide 6.4% so far this year and comps were down 0.2%. Many are expecting similarly disappointing comps in the fourth quarter as well, suggesting that the firm is still struggling with declining foot traffic.
The Bottom Line on Target Stock
TGT stock isn’t as bad as its third-quarter results may have suggested. The firm’s digital sales are on the rise and its strategic initiatives look promising. While the company isn’t out of the woods yet, it could be a good long-term buy for investors who believe in the company’s ability to make a comeback.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
