Amazon.com, Inc. (NASDAQ:AMZN) has been enemy No. 1 when it comes to the world of retail. But do companies like Target Corporation (NYSE:TGT) even stand a chance? TGT stock is giving mixed signals but tilts its hand to a “cautiously optimistic” outlook.
In the long-run, the question of Amazon vs. Target boils down a simple “no,” on whether Target has a chance in a one-on-one battle. But thankfully, this isn’t a bankruptcy-or-prosper proposition. Target can very well continue to operate (and operate well!) despite the ever-growing behemoth that is Amazon.
Amazon vs. Retail
Amazon has a few factors working in its favor. First, e-commerce is a long-term secular trend. Consumers will always take the easy route, and what’s easier than shopping online and having your product show up on the doorstep a day or two later?
It helps when your shareholder base cheers revenue growth and market share over profits. It helps even more when you’re a leading cloud-computing company and have revenue and profit streams coming from different business segments.
Put simply, we don’t see Walmart Inc (NYSE:WMT), Target or Kohl’s Corporation (NYSE:KSS) operating cloud segments or generating massive cash flows from Prime memberships. But that doesn’t mean they aren’t trying.
Walmart recently overhauled its website and is looking to acquire Flipkart to better compete with Amazon. Reportedly, the retailer has about 100 million unique visitors per month vs. 180 million for Amazon. With some further investments and a successful website overhaul, WMT can chip away at AMZN’s market share lead.
Home Depot Inc (NYSE:HD) recently announced it’s hiring 1,000 more workers for its (surprisingly powerful) tech team, part of an $11.1-billion strategic investment running through 2020. For Target’s part, the company has expanded its same-day delivery locations, and there was even speculation about a potential deal with Kroger Co (NYSE:KR).
While the rumored deal hasn’t panned out — at least not yet — it shows that retailers are making a serious effort to avoid irrelevance.
Valuing Target Stock
The issue with TGT stock? The retail sector has been a troubled investment group for a while now. So it’s very much a scenario where even the best names can struggle to outperform. I personally find HD to be one of the top picks in retail, but that doesn’t mean TGT stock is one to scoff at.
Shares trade at a paltry 13.4 times this year’s earnings and less than 13 times next year’s earnings. The valuation is low, which helps make up for Target’s less-than-stellar growth. On the plus side, though, it is growing. Analysts expect about 1% sales growth this year to go along with almost 2% growth in 2019.
On the earnings front, forecasts call for ~12% growth in 2018 before just 4% growth in 2019. On the plus side in both years, earnings growth should outpace revenue growth, allowing margins to expand as well.
Finally, one last growth consideration comes from comparable-store sales. For 2018, management expects low single-digit comp-store sales growth, another solid, although not necessarily great mark. Many retailers are stuck with flat to negative comp-store sales growth.
There’s also the 3.5% dividend yield investors can sink their teeth into. That’s a rather healthy yield, especially with the recent volatility in the market.
Trading TGT Stock
The thing I really like about TGT stock? How simple its setup is. After a nice pop in the first few trading days of 2018, Target has been bouncing between $68 and $78 since. Somewhere in there, $73 also started playing a role (blue line).
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Still, it’s a clean and easy chart to decipher. It helps that Target stock is getting a boost from its 100-day moving average. Unless it closes below $68, it’s better to remain bullish rather than bearish. While many consider consolidating price action to be neutral, the hand tilts to the direction of its latest move.
Meaning that if Target stock rallied and is now consolidating, momentum still belongs to bulls. The opposite is true on the way down. In the case of Target, I’d look for an eventual test of $74, then its highs near $78, so long as $68 holds as support.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell was long HD.
