Michael Hakes - CFA, MBA Target Corp TGT-N PAST TOP PICK Nov 01, 2024

Retail advantage: $1 billion house brands, now totalling 11. Also, they have such scale, they can collect massive data and harness that data using AI to better predict their business. They just announced good inventory levels. So, they can bring in new product without having to discount the old. Since yesterday, they've had a great run.

Has continued to hold. Margins have continued to improve. Supply chain issues are beginning to resolve themselves. Consumer spending patterns continue support business model. ~4% dividend yield is strong and safe. Would expect share price to increase to ~$200. Excellent for long term investors. 

He exited around $170 as it got exuberant in the spring on improving margins. The thesis has played out. Still positive on it, but doesn't yet meet his portfolio requirement of a +20% return to the target price. 

Consumer is looking for savings, so he's neutral to fairly positive on the name at these levels.

They did a good job getting back to basics in their general merchandise, but consumables will be the real driver. He expectations for comps are low this quarter. She's interested in what they guide when they report next week, hoping for a nice 2-2.25% increase. There's a lot of room here for margin improvement. 

The US consumer remains a risk despite Target's strong performance today and their quarter. Target's number is encouraging though. He will look at them.

Delivered an amazing quarter last week after a brutal 2 years (-62%) suffering problems like too much inventory post-Covid and theft. The new CEO led the company on a rally from last October through April, but the company issued an an earnings miss in May and issued weak guidance for the next quarter. Shares plunged from a skeptical street. But shares jumped 10% last week after reporting. Target is back! They delivered 2% same-store sales growth, a beat, and the first quarter of positive comps since end-2022, even with lower comps. Also, digital sales are up and higher general traffic. They beat earnings and operating margins though lowered slightly their earnings forecast. Reasons for success: controlling theft, launching a successful loyalty program and cutting prices on 5,000 items.

Seasonally, retail tends to do well from late-October to November, and the sector did do well. But TGT didn't, not a good sign. Underperforming. Retail is also strong from late-January to mid-April.

He expects an activist to step in, but they do food and places with scale, like Walmart and Amazon, do it better.

Trades at 10x PE and pays a 4.75% dividend yield. Has fallen and is now cheap historically.