Target (TGT) Last Update 12/27/20
Related: BBY CL COST HD
% of Stock Price
Revenue
Gross Profits
Free Cash Flow
Target
STOCK PRICE
DIVISION
% of STOCK PRICE
Target U.S.
100.0%
$202
Net Debt
10.5% $21
TOTAL
100%
$202
$180.99
Yours
Trefis Price
N/A
$195
Market
 
Top Drivers for Period
Key Drivers
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TREFIS Analysis


Trefis Report
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RECENT NEWS AND ANALYSIS

Potential upside & downside to trefis price

Target Company

VALUATION HIGHLIGHTS

  1. Target U.S. constitutes 100% of the Trefis price estimate for Target's stock.

WHAT HAS CHANGED?

  1. Target Comp Sales Skyrocketed 20.7% in Q3
Target's comparable sales grew 20.7% in Q3 to smash the consensus estimate of +11.20%. Comparable traffic was up 4.5% and the average ticket was 15.6% higher. Digital comparable sales jumped 155% during the quarter to account for 10.9 percentage points of Target's comparable sales growth. The company also picked up around $6 billion in market share in the first nine months of the year.

  1. Margins Continue To Grow in Q3
Target's gross margin rose 80 bps to 30.6% of sales to top the consensus mark of 29.6%. The margin improvement reflected the benefit of merchandising actions, primarily from exceptionally low markdown rates, partially offset by the impact of higher digital fulfillment and supply chain costs, along with unfavorable category mix. In addition, the Operating margin was also 8.5% of sales vs. 5.4% a year ago.

  1. No Formal Guidance But Company Prospects Look Good
Target is working to hold onto much of its newly gained market share. It's harnessing its steady traffic gains to attract in-demand brands such as Levi's, FAO Schwartz, and Ulta Beauty. This should help it continue to stimulate sales at a time when consumers are consolidating trips. Strong execution in digital, improving inventory position, new merchandising opportunities (pairing up with Ulta), and a plan to put its large cash balance to work with a share repurchase plan beginning next year - all indicate growth prospects for the company.

  1. Impact of coronavirus outbreak
Target stock has shown much resilience to the coronavirus pandemic. The consumer spending trends set up well for the grocery-led retail sector. Target saw the fear-led public stocking up on food and essentials like medicine and cleaning supplies during this coronavirus crisis. The company also saw a boost in products related to in-home activities, such as home office and entertainment needs.

  1. Target's Transition Efforts Appear To Be Working

Target is looking to overhaul its business model with the expansion of small-format stores, in addition to revamping its existing stores and improving supply chain management, since the beginning of 2017. The results of Target's business transformation have started to show in the company's financials from Q1 2018 on. In 2019, Target's revenue grew 4% year-over-year (y-0-y) to $78 billion, driven by a strong 3.4% increase in comparable sales. Among the components of the reported comparable sales, traffic grew a 2.7% y-o-y. The fact that the company has been able to grow its store comparable sales, despite significant competitive pressure, suggests that its initiatives are resonating well with customers.

  1. Target Expands into Same-Day Delivery Options

Target is leveraging its network of stores, and Shipt's technology platform and community of shoppers, to add same-day delivery to its capabilities. Shoppers will be able to pay a flat fee of $9.99 and have the option to get 65,000 items on Target.com delivered the same day. In addition, Target shoppers would also be able to get orders delivered on the same day by being a Shipt member, which costs $99 per year.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Target's value that present opportunities for upside or downside to the current Trefis price estimate for Target:

  • Target's Average U.S. Revenue per Square Foot: Target's average U.S. revenue per square foot increased from $293 in 2016 to $325 in 2019. Going forward, we expect this figure to rise driven by the company's small store expansion, rewards program and improving online sales. We currently forecast Target's revenue per square foot to reach $377 by the end of our forecast period. However, if the average revenue per square foot grows faster-than-expected due to strong online sales, reaching $383 by the end of our forecast period, there could be a 5% upside to Target's stock price.

  • Total Number of Target U.S. Stores: The total number of Target stores has increased consistently, driven in large part by the small-format stores. We forecast that the retailer's store count will reach around 1,932 by the end of our forecast period. However, if Target manages to expand more rapidly without losing average sales per store, and its store count reaches 1942, there can be an upside of about 5%. This could happen if it penetrates more urban markets with smaller format stores.
    For additional details, select a driver above or select a division from the interactive Trefis split for Target at the top of the page.

    BUSINESS SUMMARY


    Target Corporation is among the ten largest retailers in the U.S. by sales. Target generated around $78 billion in revenues in 2019 through the sale of apparel, electronics, housewares, groceries, and other products. It had around 1,868 U.S. stores under operations as of the end of 2019.

    KEY TRENDS


    Threat of self cannibalization due to massive size

    Like any retailer, Target’s long-term sales and income growth depend largely on the company’s ability to open new stores and expand into new markets. However, due to Target’s size, it runs the risk of cannibalizing its own sales in the US.

    Greater focus on groceries to improve store traffic

    Consumer spending on groceries can be classified as non-discretionary and is, therefore, less correlated to macroeconomic factors. Target has focused on growing its grocery business due to its non-discretionary nature, in addition to the fact that many customers still prefer to buy groceries in stores rather than online. However, the grocery segment is a relatively low-margin business.

    Growth in e-commerce

    Target’s online sales do not contribute much to its overall revenues, but they have been growing at a robust pace. We expect this to continue, with the e-commerce business eventually becoming a substantial contributor to the company's overall revenues.