Target Corporation (NYSE:TGT) faces perhaps the strongest competitive threat of its existence. The emergence of online retail, competitive threats from Amazon.com, Inc. (NASDAQ:AMZN), and intensified competition in the grocery business have stopped revenue growth in its tracks.

However, many of the “upscale discount” retailer’s attributes remain intact. With its low valuation, high dividend and competitive responses, now is the time to look at TGT stock itself as the company’s best upscale discount.

Target Faces Increased Competition

It’s true that Target faces more serious competitive challenges now. The days when it succeeded as the upscale alternative to Wal-Mart Stores Inc (NYSE:WMT) have passed. As I pointed out in a previous article, revenue has remained stagnant, and same-store sales growth continues to struggle.

Competitive threats to its grocery business not only come from Whole Foods, but also from German grocers Aldi and Lidl, who have carved out their own niche in this market.

Moreover, Wall Street reacted poorly despite the company beating on revenue and earnings. The TGT stock price fell by 9% after the earnings report on lower guidance. The company now expects TGT earnings in a range of $1.05-$1.25 per share for the next quarter. Analysts had been expecting $1.24.

Brick-and-Mortar Retail Will Remain

That said, when it comes to brick-and-mortar retail, the reports of its death are greatly exaggerated. As my colleague Luke Lango likes to point out, brick-and-mortar retail isn’t dead; it’s merely shrinking.

Many retailers such as Sears Holdings Corp (NASDAQ:SHLD), Macy’s Inc (NYSE:M) and J C Penney Company Inc (NYSE:JCP) face a high likelihood of losing their seat when this game of retail musical chairs runs its course.

TGT confronts a much less dire future. In fact, it has more going for it than Best Buy Co Inc (NYSE:BBY). Five years ago, analysts had left BBY for dead, yet it adapted and recovered. Target remains in much better shape as it has a more diverse set of offerings and customers.

Abandoning its online partnership with Amazon a few years ago probably set Target back. However, the company continues to fight to retain its upscale discount niche. The company has responded to Amazon’s and Walmart’s challenge with in-store pickup options and its Target Restock service.

Expect Target to Catch Up to Peers

The current TGT stock valuation also remains attractive. The stock currently trades at 12 times earnings. This figure stands at less than half the retail average of 26. Walmart’s current PE also stands at around 26.

The company also maintains its 46-year track record of dividend increases. Owners will receive a TGT stock dividend of $2.48 per share in 2017. This represents a 4.2% yield, more than double the S&P 500 average.

Archrival Walmart has risen to all-time highs on its response to Amazon. Numerous other retailers have seen increasing stock prices on better-than-expected numbers. I believe Target’s strategy puts the company in a position to do the same.

With the current TGT stock price in the high $50s, taking the PE ratio to 26 would place the value at around $125 per share. Current buyers of Target stock are paid a 4.2% (and likely increasing) rate of dividend return to wait.

Bottom Line on TGT Stock

A new competitive strategy, as well as an attractive valuation, make TGT stock a worthwhile discount purchase.

No doubt Target has struggled amid competition from online retailers as well as new entrants into the grocery market. Many have questioned if the company still had a moat. However, revenue and earnings have resumed growth after years of a slow decline.

Moreover, the market has started recognizing that brick-and-mortar retail hasn’t died. Retailers such as Walmart have risen on that realization. Target stock will likely follow soon, as the company reasserts its claim in its upscale discount niche.

While the company still retains some risk, investors will likely find Target itself to be the upscale purchase that’s bought at a discount.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.