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Target: Great Ride, We Part Ways

Aug. 06, 2018 7:00 AM ETTarget Corporation (TGT)DG28 Comments


  • One of my most successful calls of the past year, I let Target go and locked in my gains.
  • While turnaround-related catalysts existed in the second half of 2017, they have become a bit more rare this year.
  • I am not bearish on TGT nor the company's turnaround strategy, but I believe the great majority of the share price upside has been captured.
  • Members of my private investing community, Storm-Resistant Growth , can follow this idea, as well as my other top picks with access to my model portfolio. Start your free trial today >>

When I picked Target (NYSE:TGT) to be my Cheddar TV Idea of the Month, back in August 2017, the stock seemed to be very much out of favor with investors. Trading at a forward earnings ratio in the low teens, I believed the Street had unduly punished a retailer that had already begun to show the early results of its turnaround efforts, which had started barely six month prior.

Credit: The American Genius

Today, I see TGT commanding much more respect from the investing community than it did back then. Between my original bullish call and now, the stock has climbed from $55/share to produce 48% in market value gains. Most if not all my projections materialized during the period, with current year revenues expected by the Street to reach 2015 levels after a painful dip that saw the worst of it in the 2016 holiday season.

Looking at my three-year model (see below), I continue to believe that Target can top earnings expectations, particularly by 2020. However, I also recognize the risks to my more bullish projections not materializing, particularly as (1) the pressures of everyday low prices help to both offset the benefits of increased foot traffic and cap gross margin expansion, and (2) personnel expenses should continue to rise as the company's minimum wage heads towards $15/hour. On the plus side, store remodeling investments could start to phase out within the next 12-18 months (good for future dividend growth), with the non-cash drag caused by increased depreciation expenses affecting the P&L for longer.

Source: DM Martins Research

So while I maintain my model unchanged, I believe there is little upside to my above-consensus projections. My current 2020 EPS expectations of $5.94 look achievable but admittedly closer to the best case scenario, considering the potential headwinds described above. While turnaround-related catalysts existed in

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This article was written by

DM Martins Research profile picture
Tracking Economic Inflection Points To Guide Your Asset Allocation Strategy

Daniel Martins is a Napa, California-based analyst and founder of independent research firm DM Martins Research. The firm's work is centered around building more efficient, easily replicable portfolios that are properly risk-balanced for growth with less downside risk.

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Daniel is the founder and portfolio manager at DM Martins Capital Management LLC. He is a former equity research professional at FBR Capital Markets and Telsey Advisory in New York City and finance analyst at macro hedge fund Bridgewater Associates, where he developed most of his investment management skills earlier in his career. Daniel is also an equity research instructor for Wall Street Prep.

He holds an MBA in Financial Instruments and Markets from New York University's Stern School of Business.

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On Seeking Alpha, DM Martins Research partners with EPB Macro Research, and has collaborated with Risk Research, Inc.

DM Martins Research also manages a small team of writers and editors who publish content on several TheStreet.com channels, including Apple Maven (thestreet.com/apple) and Wall Street Memes (thestreet.com/memestocks).

Analyst’s Disclosure: I am/we are long TGT, DG. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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