Don’t Let Target Corporation Stock Fool You At These Prices

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TGT stock - Don’t Let Target Corporation Stock Fool You At These Prices

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Long in Walmart Inc’s (NYSE:WMT) shadow, Target Corporation (NYSE:TGT) finally looks like a winner. On a year-to-date basis, Walmart shares are down roughly 5%. TGT stock? Try 11.5%, and since its July 2017 lows, the familiar big-box retailer has gained a whopping 50%.

The turnaround is even more impressive considering the broader market context.

Although business media outlets are encouraged with the Dow Jones Industrial Average’s consecutive string of positive sessions, the overall result is lacking. Currently, the Dow and other benchmark indices are still behind for the month of February. Thus, it’s quite possible that we have more downturn ahead, which wouldn’t bode well for Target stock.

Still, TGT stock investors will take what they can, and they might actually enjoy more. The company enjoys a number of tailwinds, with the first being better-than-expected holiday sales growth. While some analysts were forecasting zero growth, and at the highest end only 2%, Target raked in 3.4%.

In addition, consumer sentiment may be aligning favorably for Target, and by logical deduction, TGT stock. In President Trump’s contentious administration, he won an unexpected political victory with his ambitious tax reform proposal. Theoretically, with the middle class receiving much-needed tax relief, all retailers can finally look forward to better times.

Finally, Target recently acquired Shipt, a membership service which specializes in receiving customer orders and delivering on the same day. With this acquisition, TGT will roll out same-day delivery for half of its stores by early this year.

On the surface, it sounds like a tremendous boost for Target stock. Rival Walmart doesn’t focus on same-day delivery, while this option allows TGT to compete with Amazon.com, Inc. (NASDAQ:AMZN). However, I’m not exactly a believer.

Much Work Needs to Be Done for TGT Stock

Don’t get me wrong: I appreciate the company’s moxy, and their can-do spirit in the face of enormous pressure and competition. At the same time, I wonder if they’re not stretching themselves too thin by taking on the Amazon juggernaut.

I noticed a few things about the Shipt acquisition that investors should know about before diving into TGT stock. First, Target will offer same-day delivery for a little more than half of its products, but certainly not all. Plus, Shipt’s full impact won’t be realized until at least one year from now because same-day delivery won’t be available in all stores this year.

Of the companies that have this delivery service, the ability to buy from the entire product portfolio won’t be available until the end of 2019. To be frank, that limits the whole point about shopping at a big-box retailer. Thus, I wouldn’t be too quick in drawing comparisons between AMZN and Target stock.

Second, I’m concerned about Target’s operational competency. In 2015, the company introduced their ship-from-store delivery service to improve logistics efficiency. It was a mixed success. While management discovered that their new process was better than delivering products from a far-away fulfillment center, they ran into operational difficulties.

Long story short, Target discovered they had an inaccurate inventory management system. Some stores cancelled half of their online orders because TGT workers couldn’t find the requested items. And let’s be honest — minimum-wage, high school kids don’t make the best employees.

The bulls may counter that the retailer learned its lessons. But, potential TGT stock buyers should also know that Shipt suffered its own fulfillment issues when it first launched. Both Target and Shipt will likely hire more minimum-wage workers to actualize same-day delivery.

Is this a positive? History says no.

Are Consumers Really Back?

Lastly, I want to discuss this idea that the American consumer is back on the path to recovery. I appreciate President Trump’s pro-business agenda; I just don’t see how any one man or administration can substantively tackle our macro-economic problems.

It’s great, for example, that unemployment is down and consumer sentiment is high. But so are gas prices. Experts predict that 2018 will set a multi-year record. Surely, this increased cost will impact Target’s same-day delivery fees, which aren’t cheap to begin with.

Of course, the reason why gas prices are rising is because our dollar has worryingly weakened. Therefore, I consider the positive consumer data a wash. More people are making more currencies, but each dollar buys fewer things. That spells longer-term problems for TGT stock, so I’m not interested in taking the same-day delivery bait.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.


Article printed from InvestorPlace Media, https://investorplace.com/2018/02/dont-let-target-corporation-tgt-stock-fool-you/.

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