Seeking Alpha
Value, growth at reasonable price, deep value, contrarian
Profile| Send Message|
( followers)  

Target Corp. (TGT) shares dipped after the company announced that November same-stores sales fell by about 1%. This was a disappointment for many investors since some analysts expected that sales would be up about 2%. A short-term revenue miss does not change the long-term outlook for this company and the pullback is worth buying for a number of reasons:

1) Target's business model is well-suited for the current economic environment. Consumers are looking for value but they also want quality brand-name merchandise which is what this company offers. Target is perceived by many to be a little more upscale than Wal Mart (WMT) but it still offers very low prices, and that gives it a competitive edge. With the global economy likely to stay mired in a slow to no growth situation for possibly years, companies like Target can prosper while higher-end retailers could remain challenged.

2) Target has been reporting solid financial results. For the third quarter it earned $637 million, or 96 cents per share. This includes a 15-cent gain from the pending sale of its credit-card receivables portfolio. Adjusted earnings per share were 90 cents, which is up about 4.3% when compared to the same quarter last year. Target also provided fourth quarter guidance of $1.64 to $1.74 and GAAP earnings per share of $1.45 to $1.55.

3) Target shares currently yield about 2.3%, but there is exciting dividend growth potential in the years ahead. Target management has set a goal to increase the dividend to $3 per share by 2017. That is just about 4 years away and if that goal is reached, investors who buy at current levels will be getting a yield of nearly 5% in the future. The company is also buying back shares which helps to boost earnings. Target has bought back around $10 billion worth of stock since 2007, and the company plans to buy an additional $5 billion in stock over the next couple of years.

4) Target is a great stock to consider for dividend growth, but it also has capital gains potential. Analysts at UBS (UBS) have set $71 price target on the shares, which would provide gains of about 15%.

With a stable business model, dividend growth potential and the possibility of capital gains, Target shares appear to be an ideal buy on this and any other pullbacks.

Here are some key points for TGT:
Current share price: $62.09
The 52 week range is $47.29 to $65.89
Earnings estimates for 2012: $4.43
Earnings estimates for 2013: $4.91
Annual dividend: $1.44 per share which yields about 2.3%

Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.

Source: Why Target Is A Strong Buy For Income Investors In This Pullback