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First Signs Of A Successful Turnaround

Jul. 14, 2017 10:30 AM ETTarget Corporation (TGT)14 Comments


  • Target's EPS will come in better than expected.
  • The company has managed to turn its comp sales around.
  • Target's shares look inexpensive and investors get a nice dividend on top of that.


Target (NYSE:TGT) is a very profitable and inexpensive retailer, which had to battle dropping same store sales. The company now shows signs of growth, which makes its shares attractive for those seeking capital appreciation as well as for those looking for income.

What has happened?

On Thursday Target's management announced that its second quarter earnings would exceed the guidance it had set previously ($0.95 to $1.15 per share). More importantly, management stated that its same store sales are performing better than expected as well, the company guides for an increase in its same store sales now (management had expected another decline previously). This means a pretty big improvement from what we have seen in the last few quarters:

Q1 2016: SSS were up 1.2%

Q2 2016: SSS were down 1.1%

Q3 2016: SSS were down 0.2%

Q4 2016: SSS were down 1.5%

Q1 2017: SSS were down 1.3%

We see that Target's same store sales problems started emerging one year ago, in Q2 2016, with the worst performance being recorded in last year's fourth quarter. Quarter to quarter Target's same store sales have already improved slightly, but with Target guiding for a positive same store sales number it looks like Target's comps will see a big bump in the next earnings announcement (which will be made in August).

This will not only support Target's share price in the short term, a major shift in Target's comps momentum also has a huge implication for Target's worth in the long run.

The Discounted Cash Flow method, which is used to determine a fair value for a company's shares, comes to significantly different results when we change the company's growth rate slightly:

Using the finbox.io DCF calculator I got the following results:

We see that a change in Target's long term growth

This article was written by

Jonathan Weber profile picture
Leader of Cash Flow Club
The Investment Community where your "Cash Flow is King"
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Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in TGT over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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