Target: Invest Now Or Miss Out?

As of May 2024, Target stock is considered a sell candidate. The stock price has been falling, and it holds several negative signals. However, in September 2022, Barron's recommended buying Target stock, suggesting that the company's problems won't last forever. In November 2022, Kiplinger deemed Target a buy-on-the-dip candidate, but also acknowledged that its three straight quarters of earnings misses and a downbeat holiday forecast could give investors pause. In December 2022, The Motley Fool took a more cautious stance, stating that there wasn't a compelling reason to buy Target stock at the time due to the company's high inventory levels and other challenges.

Target's inventory and sales

Target has taken aggressive steps to address its high inventory levels, including cancelling orders, marking down prices, and promoting certain items. These actions are expected to impact profits in the short term, with the company anticipating an operating margin rate of around 2% for the second quarter of 2022, lower than previously expected.

Despite the challenges, Target's management remains optimistic about its inventory position. On the company's third-quarter earnings call, Chief Operating Officer John Mulligan stated that the inventory is in a healthier position than earlier in the year, as the early arrival of fresh inventory is planned to be sold.

Target's inventory issues are reflected in its stock price, which has seen a downward trend. As of May 21, 2024, the stock price fell by -0.593% to $155.78, and it has been downgraded to a sell candidate by some analysts.

While there are risks associated with Target's high inventory levels, there are also potential upsides. The company expects shipping costs to decrease in the future as container rates have declined, which could improve profitability. Additionally, Target's efforts to clear inventory and focus on in-demand merchandise may pay off, especially if consumer spending rebounds.

In summary, Target's inventory and sales situation is a mixed bag. While the company faces challenges in moving products and maintaining margins, its management is taking proactive steps to address these issues. The success of these efforts will depend on various factors, including consumer spending behaviour and the competitiveness of Target's product offerings.

Management's optimism

Management at Target has expressed optimism about the company's future prospects, despite facing challenges such as high inventory levels and declining profits. They believe that the business is on the right track and that the current issues are manageable.

One reason for their optimism is the expectation of reduced shipping costs. Falling container rates are expected to bring down shipping costs significantly in the coming year. This will help Target reduce its overall costs, which is crucial when dealing with high inventory levels.

Additionally, management is not overly concerned about the high inventory levels. They attribute it largely to new stock and believe it is in a healthier position than earlier in the year. They plan to move this product through various promotions and markdowns, which could impact margins. However, they are confident that the inventory is fresh and should be easier to sell.

Target's management also highlights the company's ability to navigate economic downturns successfully. They have a history of consistent growth and have outperformed peers during economic faltering. This includes maintaining customer levels, even when consumers are cutting back on spending. Their business model, customer loyalty programs, and history of growth make Target a top retail stock to own, according to management.

Furthermore, they are focused on driving efficiencies to fuel growth. In 2023, they achieved over $500 million in cost savings, and their goal is to save a total of $2 billion to $3 billion through enterprise efficiency efforts in the next few years. This includes simplifying operations, enhancing the team and guest experience, and investing in priority areas.

Overall, while Target faces challenges, management's optimism stems from expected cost reductions, confidence in managing inventory levels, a history of strong performance, and ongoing initiatives to drive efficiencies and enhance the guest experience.

Shipping costs

Target offers free 2-day shipping on most items when customers shop on Target.com and pay with their Target Circle Card. This card provides additional benefits, such as an extra 5% instant savings on Target Circle deals. The free 2-day shipping option is also available for customers who spend $35 or more, or are Target Circle 360 members.

While the high inventory levels posed challenges for Target, the expected reduction in shipping costs could help improve their cost structure. It's important to note that shipping costs are just one factor influencing Target's financial performance and investment potential. Other factors, such as consumer spending habits, inventory management, and overall economic conditions, also play a significant role in assessing the attractiveness of investing in the company.

Stock price and performance

As of May 21, 2024, Target's stock price was $155.78, having fallen 3 days in a row. The price fell by -0.593% on the last day (Tuesday, May 21, 2024) from $156.71 to $155.78. During the last trading day, the stock fluctuated by 1.40% from a day low at $154.65 to a day high of $156.81. The price has fallen in 8 of the last 10 days and is down by -2.89% during this period.

The stock is moving within a wide and horizontal trend, and further movements within this trend can be expected. Given the current horizontal trend, Target stock is predicted to be traded between $147.97 and $175.92 at the end of a 3-month period.

Target stock holds sell signals from both short and long-term moving averages, giving a more negative forecast for the stock. On corrections up, there will be some resistance from the lines at $158.66 and $163.98. A break-up above any of these levels will issue buy signals. A sell signal was issued from a pivot top point on Monday, April 1, 2024, and has since fallen by -12.39%.

Target's stock has now lost a third of its value so far in 2022, and the company has missed analysts' earnings per share (EPS) forecasts for three consecutive quarters. The company's inventory balance as of October 29, 2023, was $17.1 billion, 14% higher than what was reported a year ago.

Despite the recent downward trend, analysts remain bullish on the stock. Of the 32 analysts covering Target stock, 15 rate it as a "Strong Buy", 7 say "Buy", and 10 call it a "Hold". The Street's average target price of $190.44 gives Target stock implied upside of about 23% in the next 12 months or so.

Profit and margins

As of April 30, 2024, Target's net profit margin was 3.87%, or 3.84% according to another source. This is an improvement on the previous year, but it is still below the 2022 level.

Profit margin can be defined as the percentage of revenue that a company retains as income after the deduction of expenses. An analyst looking at profit margin might look for a higher profit margin relative to other comparable companies, as well as a profit margin that is growing.

In Q3, the company's net earnings of $712 million were just 2.7% of the $26.5 billion in revenue that Target reported. Target's margins continue to struggle, and it may have to offer significant discounts to shift inventory, which will further impact margins.

Target's gross profit margin ratio, operating profit margin ratio, net profit margin ratio, return on equity (ROE), and return on assets (ROA) all deteriorated from 2022 to 2023 but then improved from 2023 to 2024, although they did not reach the 2022 level.

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