Target Corporation (NYSE:TGT) is one of the great retail success stories of the 21st century. But the industry is passing it by, and TGT stock is fading fast. Can tomorrow’s earnings report right the ship?
Perhaps … at least for a little while.
Expectations are low: Analysts anticipate a 29% decline in earnings-per-share and a 3.5% sales decrease.
Sadly, those would represent improvements over the previous quarter. So the bar is low. If Target earnings come in higher, it will be deemed a victory. But until TGT stock starts demonstrating real, sustained growth again, the company projects the appearance of a retail has-been.
Can TGT Stock Recover?
That’s an odd thing to say about the sixth-largest brick-and-mortar retailer in America. But remember, Target firmly held the No. 2 spot behind Wal-Mart Stores Inc (NYSE:WMT) for years, and was once deemed the only real threat to the king of the retail world.
After more than a decade of steady growth, Target stock topped $70 billion in sales for the first time ever in 2012, reaching $73 billion. It hasn’t been higher than $73 billion since, dipping below $70 billion last year. The company’s sales have now declined for five straight quarters, with a sixth in a row expected.
As Target has regressed, so too has TGT stock. The company has lost roughly a quarter of its value in the last year, including big nosedives in January and February. Target stock hasn’t traded above its 50-day moving average all year.
Given that ugly backdrop, I think it’s time to ask the uncomfortable question — one that’s especially uncomfortable if you still have TGT stock in your portfolio. Is Target on its way to becoming extinct?
Department stores like Sears Holdings Corp (NASDAQ:SHLD), J C Penney Company Inc (NYSE:JCP) and Macy’s Inc (NYSE:M) have essentially been declared dead for years. Lesser big-box stores have also fallen by the wayside. Is Target — revered and affectionately called “Tar-jay” in its heyday, which wasn’t long ago — the next victim? Have Jeff Bezos and Amazon.com, Inc. (NASDAQ:AMZN) officially swallowed it whole too?
It’s too early to go that far. But it’s at least fair to wonder if TGT will ever get back to consistent growth again. By extension, it may take a while for Target stock to reclaim its $82-peak, established little more than a year ago.
There’s a chance it may never get back there.
Target Stock Is Not a True Bargain
Trading at just 11 times earnings, it’s easy to get sucked into a value trap with this stock. But TGT stock is cheap for a reason: earnings aren’t growing and the stock has been falling for a full year.
And that’s why I would recommend avoiding Target stock, even if it handily beats earnings on Wednesday. In an era where online retailers are laying waste to malls, department stores and big-box stores across America, the only brick-and-mortar stores still thriving are the extremely high-end (think Tiffany & Co. (NYSE:TIF)) or the deep discounters (think Five Below Inc (NASDAQ:FIVE) and Dollar Tree, Inc. (NASDAQ:DLTR)).
Target is caught somewhere in between. And right now, that might as well be purgatory.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
