If you live in the US, there’s a 75% chance that you live within 10 miles from a Target (TGT) store. Formerly known as the Dayton Company, the company is based in Minnesota, where the first Target store was established in 1962. With over 1,900 stores, the general merchandise retailer has its footprint in all 50 US states as well as the District of Columbia.
Target offers a range of national and private brands, which it refers to as ‘owned brands’. Its red bull’s eye logo is one of the most recognised corporate brands.
On 14 December 2021, Store Brands awarded Target the Retailer of the Year award for 2021. In an interview with Store Brands, Target stated it aspired to differentiate its operations through its owned brand portfolio.
Following research into its customers’ tastes and preferences, Target launched over 30 store brands uniquely curated for its target market, 10 of which have surpassed sales of $1bn. This growth trajectory resulted in record breaking top-line growth for the company.
However, profitability remains a concern for the retail giant. On 18 May, Target released its financial results for Q1 2022 and reported adjusted earnings per share (EPS) of $2.19, which fell short of the Zacks consensus estimate of $3 and was 40.65% lower than the previous year’s $3.69.
After the results were reported, the TGT stock price fell by nearly 25%. Join us as we find out what lies ahead for the retailer, undertake a Target stock analysis, and get analysts’ insights on the Target future stock price.
Target stock fundamental analysis: Q1 2022
In its Q1 2022 financial result, Target reported total revenue of $25.1bn, beating Zacks analysts’ consensus estimate of $24.5bn. Compared to Q1 2021 revenue of $24.1bn, the top-line for Target increased by 4%.
Marking 20 consecutive quarters of sales growth in Q1 2022, Target reported over 95% of its first quarter sales was supported through its physical stores, with store sales increasing 3.4% YoY. Digital sales were also up by 3.2%, following growth of 50.2% in the previous year.
Compared to 2019, sales of the company grew over 40% or $7.4bn. Out of this, nearly 55% ($4.1bn) was driven through its store sales with the remaining 45% ($3.3bn) being due to its digital platforms.
Target launched its Drive-Up service back in 2018. This offers customers free contactless pickup from a nearby Target outlet, as they can have their online orders brought out to their cars by the store members within minutes of placing the request.
Drive-Up has been marketed as the ultimate shopping and saving sidekick for the customer and was instrumental in driving more than half of Q1’s digital sales.
In its first quarter earnings, Target reported its top-line growth was primarily supported by the frequently-purchased consumer products such as food and beverages, beauty items and household essentials. However, a drastic fall was observed in purchases of home goods and apparels.
With inflation at a four-decade high, there was a switch in consumer spending as prices continue to outweigh wages. Target’s cost of sales of $18.4bn remained inflated by over 10%, compared to $16.7bn in 2021. The selling, general and administrative expenses stood at $4.7bn for Q1 2022, a 5.6% hike YoY.
Owing to supply chain disruptions, Target’s fuel and freight costs soared in Q1 leading the company to mark down its inventories. Overall, inventories stood at $15bn, 8.5% higher from the previous quarter’s $13.9bn, and 43.11% higher from $10.5bn YoY.
The inflated inventory levels led to inventory impairment costs, which contributed to the overall dip in earnings. Michael Fiddelke, chief financial officer at Target, mentioned that the inventory markdowns were likely to continue into the next quarter as well.
The operating income for the company was reported at $1.3bn, 43.3% lower than the $2.3bn figure from Q1 2021. Commenting on the company’s disappointing earnings, chairman and CEO Brian Cornell said:
Despite the decreased earnings, Target stock dividends reflected a 32.4% dividend per share increase, partially offset by a decline in the average share count. The company paid $424m in dividends for Q1 2022, compared with $340m the previous year. Additionally, Target signed on to an Accelerated Share Repurchase (ASR) arrangement for up to $2.75bn of its common stock with the final settlement outstanding as of end of Q1 2022.
Targets tests its first net-zero energy store
Target has committed to being a net-zero enterprise by 2040, with its sustainable strategy Target Forward. By 2030, the company aims to source 100% of its electricity from renewable sources. Compared to 2017, Target has managed to reduce 27% of its direct operations’ emissions.
In recent TGT stock news, on 17 March 2022, the company announced the launch of its retrofit Vista California store. Operating on an environmentally friendly store model, this property will generate more renewable energy that it consumes annually, through solar panels and carport canopies.
What is your sentiment on TGT?
Target has applied for a net zero energy certification from the International Living Future Institute, and aspires to transmit the 10% energy surplus generated through the store back to the local power grid.
John Conlin, Senior VP of Target Properties, said:
Target stock price movements
On 18 May 2022, following the release of the company's financial results, TGT stock fell by nearly 25%. From its close price of $215.28 on 17 May, the stock dropped to $161.61 the next day, making it TGT’s worst one-day performance in 35 years. The steep fall was reminiscent of the infamous Black Monday of 19 October 1987, when the stock plummeted by 32.96%.
Drawing comparisons with Walmart’s underwhelming Q1 earnings, Adam Crisafulli, an analyst from Vital Knowledge, said:
Since the Q1 results were published, Target stock has been on a steady decline. On 20 May 2022 it closed at $155.36. Compared to the close price of $231.11 on 31 December 2021, it’s fallen by 31.72% year-to-date (YTD).
Milan Vaishnav, CMT, MSTA, a consulting technical analyst at Gemstone Equity Research & Advisory Services, shared a technical analysis on Target stock market, noting:
Target announced on 7 June that it planned to trim down excess inventory by cancelling orders and implementing additional markdowns to products. The retailer also lowered its operating margins guidance for the quarter — it currently anticipates its operating margin rate for Q2 2022 to come in at 2%, which is lower than the outlook it gave less than three weeks ago, when it said that the same figure would total 5.3%.
Target shares fell 2.3% following the news of the inventory clear-out, but the stock has since rebounded slightly.
In a note to Capital.com, Chris Beauchamp, chief market analyst at online trading platform IG, commented that buyers had stepped in to halt the slide on 7 June:
Beauchamp placed the market's reaction in the global context, and continued with a word of caution in light of the upcoming US reporting seasons:
Target future stock price forecast
As of 9 June, 26 analysts’ predictions compiled by TipRanks gave a consensus TGT stock price target for 12 months of $183.23. The stock projection varied from a potential low of $150 to a high of $231. The average price target represented a 16.71% upside change from the trading price of $156.95 on 9 June. Seventeen analysts recommended buying TGT stock and nine maintained a ‘hold’ rating.
According to the algorithm forecaster Wallet Investor, the Target stock forecast for December 2022 was a potential high of $251.762. For December 2025, the TGT stock prediction was projected to fall within the range of $349.636 to $367.818.
Several brokerage firms and analysts updated their TGT stock price forecasts after the price drop on 18 May.
JP Morgan (JPM) heavily discounted its price target from $302 to $188, but continued to reiterate its ‘overweight’ rating. Cowen (COWN) also brought down its stock price target, from $265 to $190 and maintained the outperform rating. Barclays (BARC) maintained its overweight rating on Target but cut down its price target to $200 from $280. Goldman Sachs (GS) lowered its price target to $191 from $290, but maintained a buy stance on the stock. Lastly, Wells Fargo (WFC) lowered its price target from $165 to $155 on 7 June while maintaining a 'hold' rating.
When looking for stock forecasts, it’s important to bear in mind that analysts’ forecasts and price targets can be wrong. Analysts’ stance on whether Target stock is a buy, sell or hold is based on making fundamental and technical analyses of the stock’s performance. Past performance is no guarantee of future results. You should do your own research before investing and remember to never invest money you can’t afford to lose.
Is TGT stock a good buy?
Target is one of the biggest global retailers in general merchandise. Following Q1 2022 it achieved sales growth for 20 consecutive quarters. However, with rising inflation, earnings have experienced a significant drop. Going forward, the company’s response to effectively bringing down its cost would be critical to its future prospects. Target’s CEO anticipates mid-single digit revenue growth for the year.
Whether TGT stock is a good investment for you or not will depend on your portfolio composition, investment goals and risk profile, among other factors. Different trading strategies will suit different investment goals with short or long-term focus. You should do your own research and never invest what you cannot afford to lose.
Why has the Target stock price been going down?
There has been a 43.30% decrease in the company’s quarterly operating income YoY. Owing to this, the TGT stock price crashed by nearly 25% on 18 May, after Q1 results were announced.
Will Target stock go up or down?
As of 9 June, algorithm-based forecasting service of Wallet Investor predicted the TGT stock price could potentially go up to $251.762 by December 2022. TipRanks set a 12-month price target of $183.23.
Note that analysts’ forecasts can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before investing. And never invest or trade money you cannot afford to lose.
When will TGT stock split?
Target’s last stock split took place on 20 July 2000 and followed a 2-for-1 ratio.