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There is a lot of excitement in the markets these days as indices flirt with their 2007 highs. Dramatic headlines are eye catching but payoff for the patient investor can come from less flashy sources.

A combination of reasonable valuation and talented management creates a high probability of earning an attractive return in a well known name: Target Corporation (NYSE:TGT). A review of where we have been, where we are and where we are going explains why.

Let's take a look at Target in 2007, prior to the financial crisis, and compare it to where we are today. One thing that has not improved much is the price: Target's high in 2007 was 70.8 and we are at about 62 today. Underneath this quiet facade, the company has taken a series of actions designed with two overarching effects: to grow the business and to enrich the investor.

Here is a summary of what happened. This information comes from Target's annual reports:

Number of stores - 1590 in 2007, 1781 today

Revenues - $63 billion in 2007, $73 billion today

Shares outstanding - 819 million in 2007, 662 million today (and falling)

EPS - $3.21 in 2007, $4.39 (estimated) for the year ending January 2013

Dividend - 52 cents per share in 2007, $1.32 per share today

Long term debt - $15 billion in 2007, $14.8 billion today

Book value per share - $18.70 in 2007, $25.85 (estimated for year ended January 2013)

Return on shareholder equity - steady through these years between 16-18% per year

Conversion of 70% of its US stores into the new format which includes grocery sales.

Launched a prototype store program called City Target.

It's an impressive list of achievements. Despite the serious recession, the jobless consumer, the housing crisis, the budget crises and the rise of Amazon.com (NASDAQ:AMZN), Target has managed to grow its stores, increase its dividend, buy back its shares, grow book value and not take on new debt. The superb feature for today's investor is that all these improvements can now be purchased at a price considerably lower than the highs of 2007.

Good as these numbers are, there are better things to come. During the past three years, Target has embarked on a serious investment in the Canadian market. They are set to open about 125 stores by late 2013. The capital investment to build the Canadian market has been very large, starting with $1.9 billion of store site purchases in Canada, store construction, new hires and inventory buy in. Target recently announced it is prepared to offer the Canadian customer its very popular REDCard 5% discount debit/credit card program which emulates the program here in the USA.

Investors are wise to keep in mind that Target's fierce competitor, Amazon, is now obligated to collect sales tax in a growing number of US states, including high sales states such as California and Texas. This will considerably narrow the advantage Amazon enjoyed during the past decade. Target recently announced it will price match Amazon at retail.

Target has gone on record with a long term financial plan seeking to achieve $7.20 per share earnings by 2017.

The very large capital expenditures at Target are set to pay off. The economy is improving, unemployment is improving, sales tax law has leveled the playing field and the Canadian stores, representing an increase in total store count of 7%, will start generating revenue this year.

Target has a history of increasing the dividend, currently a 2.3% yield, and dividends are likely to go higher.

Assigning a 13 times multiple, which is on the very low end of the historical range, to the estimated future earnings on Target, the odds highly favor an investor achieving an approximate 12% annualized return, including the dividend, for the next four to five years. This estimate is conservative. The risk of significant permanent loss of capital at today's price is low.

Target represents a solid total return package and provides attractive current income. I recommend purchase.

Source: Target Corporation: Favorable Risk And Reward - Go Long