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Target (NYSE:TGT) is one of America's largest retailers. In the past two years, the Minneapolis-based discount retailer has been in the news for entering the Canadian market. It acquired up to 220 Zellers department store locations for $1.8 billion and now has 68 stores in Canada. Shares of Target rose 14% from March then fell after the company announced its second quarter report. They currently rest around $64 a share. The decline should have value hunters flocking to this stock, as all metrics point out that now may be the best time to buy Target.

Financial

In the second quarter, Target earned 95 cents per share, a 14% decline year-on-year. Analysts had expected that the company will post earnings of 96 cents per share. Target's revenue increased 2.4% to $16.8 billion from $16.5 billion last year. However, it fell below analyst expectations of $17.26 billion. Revenues at Target stores rose 1.2%, below the 1.9% analysts had expected. Consequently, analysts at Susquehanna downgraded the stock.

Actually, Target posted a commendable result. Second quarter gross margin increased to 31.4% in 2013 from 31.3% in 2012. Had the Canadian operations not reduced Target's earnings, the company would have earned $1.19 cents per share and beat Wall Street expectations. For the full-year 2013, the company expects its adjusted EPS to be near the low end of its previous guidance of $4.70 to $4.90. This will beat analyst expectations of $4.33. The results of its U.S. operations were $1.19 in second quarter 2013, up 6.1 percent from $1.12 in 2012

Valuation

Target's fundamentals are very interesting. Over the past year, the company's dividend yield has been 2.50%, above 1.75% for the services sector and 2.2% for the variety stores industry. The yield is competitive with 2.50% for Wal-Mart (NYSE:WMT) and higher than 1.10% for Costco (NASDAQ:COST). Target's earnings multiples show that investors should take note of this company. By looking at its price to earnings ratio of 15.97, we can see a discount when compared with the industry average (18.1) and Cosco (24.41). With a PEG ratio of 1.46, the stock is more attractive than Wal-Mart (1.54) and Costco (1.82). Its profit margin of 3.38 outpaces 1.94% for Costco and 3.1% for the industry. With an operating margin of 7.71%, it is more profitable than Wal-Mart (5.91%) and Costco (2.91%).

Estimates of the company's future earnings are also encouraging. At a forward P/E of 12.58, it is cheaper than Wal-Mart at 12.74 and Costco at 22.39. Target will grow its EPS by 10.72% per year in the next five years, compared with -9.10% for Wal-Mart. Though its debt equity is 86.36, the debt load is light compared with the sector average of 125.40. Target's return on assets at 17.60% blows away 6.59% for Costco.

From a macroeconomic standpoint, cautious consumer spending and cost associated with its Canadian expansion have certainly not helped Target's shares. But NRF forecasts a 3.4% increase in retail sales for 2013. This should pave the way for a bullish trend that will be in the company's favor.

Holders

Institutional investors prove that a company has financial stability. 88% of Target's shares are held by institutional and mutual fund owners. Looking at the major holders of the company, the list is headed by State Street Corporation with over 60 million shares. Another major institutional holder is Vanguard Group with over thirty-three million shares. Massachusetts Financial Services Co. has a stake of over 25 million shares.

Analysts

Target has been a focus of a number of research reports in the recent past. 12 of them have issued a hold rating, ten a buy rating, three a sell rating, and one a strong buy rating to the company's stock. Target currently has a consensus rating of "Hold" and an average price target of $72.84.

Conclusion

Going forward, the company expects cautious spending by consumers in the face of household budget pressures. However, if it refines operations in its Canadian stores, investors will gain more upside, making it possible for them to benefit immensely. We expect the demand for its products to be strong because of sustained consumption, particularly in the United States. However, we don't believe Target will deliver the same returns it had been delivering for some time due to its expansion into Canada. It is however a value stock that offers attractive risk-reward combinations, and it should have decent returns over the long-term. Investors looking for a stable long-term investment should place Target on their watch list.

Source: Is Target Corporation A Good Investment?