For years I’ve written stories comparing Target (NYSE:TGT) stock with Walmart (NYSE:WMT) stock. Under CEO Brian Cornell, Target stands alone.
Target shares are up 93% over the last year. They will open today at about $226.
That’s a market cap of $112.8 billion on fiscal 2021 sales of $93 billion. How is that even possible? For the first fiscal quarter of 2022, which ended in April, Target sales were up 23% with net earnings of $2.1 billion, $4.17 per share fully diluted.
Target is killing it.
TGT stock is getting growth for the same reason Amazon (NASDAQ:AMZN). Its online sales are exploding. It’s even out-Amazoning Amazon by having most of its shipments fulfilled the same day they’re made.
In its first-quarter report, same-day online shipments were up 90% year over year, even though 95% of revenue came through the chain’s stores. Even as the pandemic eases, people are ordering online and picking up their orders at the curb.
Pick-up orders aren’t a big innovation, however. Walmart and Kroger (NYSE:KR) are also doing a lot of business that way, but Target has taken this up another notch.
Target was ready for the pandemic years before it happened, thanks to two acquisitions Cornell made back in 2017. Grand Junction offered software for managing retail logistics and delivery. Shipt offered same-day delivery services. Last year Target added technology from Deliv, another same-day delivery platform.
A Closer Look at TGT Stock
As online buyers switch from driving to stores for their purchases to wanting them at their door, Target is ready. It is trialing a sorting center in Minneapolis that will take orders picked from stores and get them onto trucks efficiently. Target is offering same-day delivery services free on orders over $75 and is focused on making this profitable. (Can a “Target Prime” plan be far behind?)
I have written many times at InvestorPlace praising Target, but even I’ve been taken aback by the speed of its rise.
There are two sides to getting more margin for retailers. Delivery is just one of them.
The side I’ve focused on most has been Target’s supply chain, its creation of store brands with quality equal to national ones.
This was Cornell’s first big innovation, starting in kids’ apparel with Cat & Jack, but now extending across the apparel space with brands like All in Motion activewear. That’s now going into food, beauty products and cleaning supplies, according to Profitero research.
Target’s private labels now represent 27% of its page one search results on food and beverages, 21% in cleaning, 17% in health and beauty. This means even more profitable expansion can be expected.
Moves began under Mark Tritton, now CEO of Bed, Bath & Beyond (NASDAQ:BBBY), have been expanded upon by successors like Jill Sando. Target now has 10 store brands with sales of over $1 billion/year each.
The Bottom Line
It’s extraordinary for a retailer to be priced at a premium to sales. TGT stock is now priced at a 21% premium to the company’s fiscal 2021 revenue. Walmart, by contrast, is worth just 70% of its revenue.
But Target is miles ahead of Walmart in private label and looks to be lapping the larger company in same-day fulfillment. Its extraordinary valuation appears to be fully justified. The price to earnings ratio is still just 19, while Walmart’s is 33, something I’ve complained about.
I feel a little giddy writing this. But even at its current price, I think you can buy TGT stock and in five years look very smart.
On the date of publication, Dana Blankenhorn did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at email@example.com, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.