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Major Sell Signal For Target

Oct. 05, 2021 3:16 PM ETTarget Corporation (TGT) StockAMZN, UPS, WMT28 Comments
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  • Target's performance during the Back-to-School season is troubling for investors.
  • The company's impressive run since the start of the Pandemic may be finally over.
  • While the company has a long history of paying dividends, its current yield makes it no longer attractive for investors.
  • This idea was discussed in more depth with members of my private investing community, Dividend Armada. Learn More »

Target Corp. Reported A 4 percent increase in second-quarter profits

Taking a pause after Target's record run

Alex Wong/Getty Images News

Target's fantastic bull run looks to be finally coming to a close. With stretched valuations and recent signs of weakness from the consumer, this retail darling may no longer belong

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Analyst’s Disclosure: I/we have a beneficial long position in the shares of TGT, UPS, AMZN either through stock ownership, options, or other derivatives. 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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Comments (28)

In this yo yo pandemic environment Target gets A+ on
learning how to pivot.
Larry Hall profile picture
I disagree with a Bearish call on TGT. I think they have made key improvements including the delivery and pickup options, the increase in quality of items, better-run stores etc. They are in a different niche than Walmart, price-wise and customer-wise. While Amazon will continue to do good business, there are many people that want to shop in-person for necessities and 'electives.' Food section is not popular, as someone noted below, but I think they do quite well with household goods and clothing as well as the nuts'n'bolts of household/cleaning/personal care. I made the mistake of selling TGT in the 70s and got back in around 245. I'll keep TGT for the next several years, at least.
Surprised TGT is not hit today after AMZN was hit yesterday on earning and guidance.
GR Value profile picture
Target at $250 is absolutely nuts. Not only will import inflation and cost of goods rise unpredictable, with or without a slowdown from consumers paying $90 gas, but just a 10% tax tweak would lob off $2 in earnings.

I don't know what person is buying today at 254, probably the same guy buying Mcdonalds at $200s. I'd rather own Amazon at $3400 than TGT at $254.
Lol long TGT
GR Value profile picture
@Drew Samson I was all for buying Target at $50 because I feel like Target may be able to make $5 to $7 long term per year sustainably with like 28-30% taxes eventually, cost of goods rising and so on. But to pay 25 years at $12/$13 and ignore all risks just seems incredibly stupid and naïve. To buy at $250 is to risk 30-40% in weeks or months if or when these risks bear fruit. Best case at $250 is it rises 10 or 20 more bucks and becomes more bloated.
bad timing same they dropped news and since than its been going upward
Using stores as fulfillment center to ship was started in 2016. Big three (WMT, TGT and Amazon) just got lucky because when covid came, either ppl did not visit stores at all or picked up/got delivered. Now Covid hopefully fading away, it should be back to where it was. In fact I reckon that ppl are sick of shopping at big three and want to ship at other stores like Macy’s
GR Value profile picture
Target has two negatives. 1) it's vulnerable to competition like Amazon and others even more now versus before, 2) it's highly vulnerable to cost side inflation. It relies on super cheap pricing and costs will clearly be rising through distribution over the next 2 years.

The real question is how bad does the things above effect TGT? I would avoid retail because they are the lowest net margin and highest cost vulnerability in cost inflation and their fixed costs of running large stores are not flexible, whereas Amazon and others can tweak or manage costs in a cost inflation scenario.

I don't know Target's tax rate but if it's 20% or below, it's likely too low as well. The stock belongs in the $150 range. Maybe in 10 years it deserves to be $250 or $300 but not now. I honestly think their EPS should normally be in the $7 to $10 range if things normalize but idk. It also has major clothing line problems. Bad distribution, bad selection bad pricing, bad fitting etc. I'm sure they'll fix this but not right away.
@GR Value, do you shop in a Target? They were never super-cheap, they've always been at a small premium to Walmart, LOL. Recently they've been even less super-cheap as COVID makes their convenience more important than price. Further their urban stores run slightly higher prices, selling more convenience again. They may even manage to sell on the web site at slightly higher prices because of the convenience of their store-pickup and local shipment options. They're doing a lot of this very quietly, so don't tell anyone!
GR Value profile picture
@Just Some Guy It's true that some of the things they sell are overpriced, but others are cheap. I guess I should've just said that they are known mostly as a value place.

The food is overpriced, the electronics seem overpriced, the housewares seem cheap. But in the context of that, if some of their products are already pretty high, they will not fare well if costs rise.

I don't shop at Walmart btw, not very often. Mostly because they feel like zoos.
@GR Value, check the food again, they made some major adjustments about two years ago, what they carry now tends to be fairly priced. I'm not sure they break even on groceries, I never buy much there, a can of soup or some bubble water, chocolate bars, ... never see a lot of traffic in the food section, and I do go in to observe. Much about the detail of their sales is a mystery, I'd love a few days going over some of their SKU analysis. Electronics may be a similar area - it was hot ten (twenty?) years ago and more or less remnant now.
Nice article. Could condense it by saying "Target's stock price has rocketed ahead of its fundamentals and is now vastly overpriced".
Long and strong.
Staying long on the big three of retail: Walmart, Costco, and Target and reinvesting their dividends.
Bought target earlier this year and will stay with this quality company.
The dividend is a little bonus.
Target's performance may well slow as consumers tighten their purse strings. But Walmart is unlikely to escape a retail slowdown. The TGT dividend is really of no consequence about where the best investment lies. The dividend is really of little consequence. Long TGT.
I agree this much, that the dividend yield is meaningless, not a reason to buy, but neither is a 2% dividend in a 5% (LOL) inflationary environment. Also I think we may see the dividend jump up 30% next year to restore that 2% level.
The stock overextended a bit to $264 but it is still within the weekly Bollinger band even at $220, so if you didn't sell or hedge at $264 I think now is not the time to go bearish.
There may be a short-term sell signal but it's weak, more likely it will find support on the rising daily 200m around $220 anyway. If it does reasonably well through Xmas should see $300 by Easter and also possibly a 5:1 split.
Long TGT.
@Just Some Guy overreaching a bit, 275. After XMAS still concerns about DC, 5-1 split, maybe 3-1
@nabby01, if they get blowout earnings $300, estimates a couple of months back were going $325.
Buyandhold 2012 profile picture
Target is a BUY.
Have you considered that consumers had bought many school supplies to home school children and that they still have stockpiles to work through?
The pick up option, either curbside or now in stores, will continue to drive additional sales.
Holiday toy shopping will begin earlier as consumers are aware of shipping shortages and will do more of their shopping before Black Friday sales.
TGT will be just fine.
MAYHAWK profile picture
While the YOP may be low, my YOC is 6% with great price appreciation. I can live with that for now.
I don’t understand the comparison to historic yields when the company was clearly in difficulty and managed a successful turnaround without a dividend cut. Naturally the yields will be lower here. The comparison of valuation and stock performance to competitors is also unfair without taking into consideration growth and market share potential. Target, although disadvantaged in supply chain, has a margin advantage by selling its own brands — popular among Gen Z. Costco is a great company also, who’s valuation is arguably more stretched than Target’s. I agree the price has appreciated a lot in light of all this, but I believe the story can continue, after a much-needed breather.
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