Target (TGT) Last Update 7/5/22
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%
$186
Net Debt
13.0% $24
TOTAL
100%
$186
$161.96
Yours
Trefis Price
N/A
$172
Market
 
Top Drivers for Period
Key Drivers
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TREFIS Analysis


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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 Suffers From Shift In Consumer Spending
The company was surprised by the sudden slowdown in consumer demand in discretionary categories like home goods. It was already stuck with a glut going into the second quarter as inventories jumped 43% to $15.1 billion even as revenue increased just 4% in the quarter. That's a sign Target badly overestimated consumer demand. Moreover, its profitability was highly pressured as its earnings per share almost halved from $4.17 last year to $2.16 this year. Meanwhile, Target's operating margin of 5.3% was well below expectations for 8% or higher.

Note: Target's FY'21 ended on January 29, 2022. Q1 FY'22 refers to the quarter that ended on April 30, 2022.

  1. Target Cuts Its Guidance Again
Three weeks after the big-box chain provided a dismal first-quarter earnings report, Target said it would accelerate markdowns to right-size its inventory as it struggles with a normalizing economy following the pandemic. In its updated guidance, Target now expects an operating margin of just 2% for the second quarter, which compares to prior guidance of an operating margin in the range of 5.3%. In the second half of the year, Target expects its operating margin to return to 6%, which it said was better than historical levels before the pandemic. Management offered revenue growth guidance in the low- to mid-single digits and said it expected to maintain or gain market share.

Still, Target's guidance cut seems to be less of a warning for the retail sector and more of a statement about retailers that mismanaged their inventory in the economic reopening. Many of those will be forced to do markdowns and are likely to report disappointing second-quarter profits.

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 $325 in 2019 to $437 in 2021. 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 $469 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 $480 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 2000 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 2050, 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 $106 billion in revenues in 2021 through selling apparel, electronics, housewares, groceries, and other products. It had around 1,926 U.S. stores under operation as of the end of 2021.

    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.