Target Corporation (NYSE:TGT) recently announced that it is laying off thousands of corporate employees at its Minneapolis headquarters. But if you’ve been waiting for just one more sign to sell Target stock … this isn’t it.
Instead, think of this as a reaffirmation of the Target motto, “Expect more, pay less” — you should still expect growth out of TGT, but you’re not necessarily overpaying for Target stock.
Layoffs, while obviously unfortunate on the employee end, typically are positive news for the companies pulling them off. The news helped push TGT up to all-time highs above $78, continuing a 30% run in Target stock over the past 12 months that has more than doubled the broader market.
And I fully expect more upward momentum from Target stock. Here’s why.
If Target Stock is a Buy, Why Slash Jobs?
No one likes to hear that more jobs are being slashed, but for Target, doing so (especially at the corporate level) is essential to future growth in Target stock.
“It’s very unfortunate for these people losing their jobs,” said Brian Yarbrough, an Edward Jones analyst. “But I think there were too many layers of management and this caused the company to be stale and not efficient.”
Target now will focus on growing its mobile and online sales, as well as opening leaner stores, such as the TargetExpress and CityTarget concepts, to tackle densely populated cities and win back old and new customers alike. In particular, TGT is looking to cater more to its Hispanic shoppers than ever before.
On a webcast with investors and analysts, Target CEO Brian Cornell called this a “time of significant change and transformation at Target” and “the beginning of the next stage in (Target) company history.”
TGT Can Sustain Growth
Target maintains an “A” credit rating and a cash-flow per share of about $7.50, far better than the broader market and signifying that it has the means to back up its planned supply chain improvements and capital expenditures. Moreover, Target’s also able to squeeze a little more out of its dollar, as its gross profit margin of roughly 29%, handily beating the discount store industry’s 24% gross profit margin.
Target’s latest press release details a few other positives:
- Savings expectations at approximately $2 billion over the next two years from corporate restructuring and supply chain improvements.
- Annual growth expectations for digital sales to rise 40%, with total sales projected to grow as much as 2.5%.
- Plans to invest over $2 billion in capex, with roughly half of it planned for investment in technology and supply chain improvements.
With Target focusing on trimming down not just its corporate management, but the way it does business on a micro level, Target should continue to draw in customers and keep TGT heading higher.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.
