Is NYSE: TGT a target for your portfolio?

First Coronavirus and now civil unrest is playing its toll on American businesses. The protests over a police officer killing George Floyd is causing business owners to shut up shop.

Target Corp. (NYSE: TGT) announced yesterday that 170 stores across the United States closed because of looting and protests. The widespread closure is inflicting a significant blow to Target’s balance sheet. Especially because Target is sacrificing revenue opportunities, and is paying employees for the next fortnight out of TGT’s cash reserves. Despite the grim outlook, this could be a  great time to add this retail giant to your portfolio?

Target in the current economic climate

Australian investors must note that Target Corp. (NYSE: TGT) is a different company to Target Australia, which is owned by Wesfarmers (ASX: WES). With COVID-19 strapping ourselves into our bedrooms, big-box retailers have had to adjust to the shift from in-store to online retail. During Q1 2020, Target witnessed a 141% increase in online sales. Also, April e-commerce sales jumping by 282% as a result of a federal government stimulus package. The drastic boost in online sales saw Deutsche Bank raise its price target to $131.00, and Bank of America to $150.00. Considering the current price is $122.15, the new price targets illustrate solid growth potential.

What are the professionals doing?

As we approach the new financial year, a total of 54 hedge funds are bullish on Target. The army size of hedge fund followers means they expect future growth. The two most bullish fund managers currently holding NYSE: TGT are Jim Simon’s Renaissance Technologies currently holding a $651.6M position in the stock, and AQR Capital Management’s Cliff Asness who holds a $413.1M position. Despite a potential recession, funds continued to rally behind TGT towards the end of Q1. For example, Junto Capital Management invested $35.8M at the end of the quarter.

Is NYSE: TGT worth the investment?

Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.

Short answer: Yes (opinion not advice) for several reasons:

  1.  Despite widespread looting and store damage, Target should receive financial compensation in the form of an insurance claim. Ultimately allowing Target to reduce the financial on their balance sheet.
  2. As of 2019, Target operates 1,851 stores across the United States and is the US’s 8th largest retailer. Targets expansive real estate portfolio and market share allow it to weather times of economic uncertainty
  3. Targets growing e-commerce platform allows it to service customers during COVID-19 and into the future. Ultimately shielding it from the slow but steady retail apocalypse.

Lastly, here are some of Target’s (NYSE) key financial fundamentals.

  • Price/Earnings ratio: 22.5x (Industry average: 24.7X)
  • Forecasted annual earnings growth: 10.7%
  • Debt/Equity ratio: 127.5% (considered high)
  • Dividend yield: 2.16% (Industry average: 1.7%)

To conclude

Whilst NYSE: TGT may not be a glamourous stock it provides a solid foundation to one’s portfolio (opinion not advice). Also the current political and economic influences could prove to make now a better time than ever to invest (opinion not advice)

The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

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https://youth-investment-group.com/portfolio/

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Written by Marlon Ferguson, Associate of YIG.

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