TGT's Stock Up 1.9%, but Worries Loom Over Declining EPS Growth

Target logged a 1.9% change during today's afternoon session, and is now trading at a price of $135.19 per share.

The company's 50-day average price is $138.32. Target Corporation operates as a general merchandise retailer in the United States. Based in Minneapolis, MN, the large-cap Consumer Discretionary company has 440,000 full time employees. Target has offered a 3.1% dividend yield over the last 12 months.

Increasing Revenues but Narrowing Margins:

2020-01-31 2021-01-31 2022-01-31 2023-01-31
Revenue (MM) $78,112 $93,561 $106,005 $109,120
Gross Margins 29.8% 29.3% 29.3% 24.6%
Operating Margins 6.0% 7.0% 8.4% 3.5%
Net Margins 4.2% 4.67% 6.55% 2.55%
Net Income (MM) $3,281 $4,368 $6,946 $2,780
Net Interest Expense (MM) -$477 -$977 -$421 -$478
Depreciation & Amort. (MM) -$2,604 -$2,485 -$2,642 -$2,700
Earnings Per Share $6.36 $8.64 $14.1 $5.84
EPS Growth n/a 35.85% 63.19% -58.58%
Diluted Shares (MM) 516 505 493 462
Free Cash Flow (MM) $4,090 $7,876 $5,081 -$1,510
Capital Expenditures (MM) -$3,027 -$2,649 -$3,544 -$5,528
Net Current Assets (MM) -$18,044 -$16,052 -$19,411 -$24,257
Current Ratio 0.89 1.03 0.99 0.92
Long Term Debt (MM) $11,338 $11,536 $13,549 $16,009
Net Debt / EBITDA 1.23 0.46 0.65 2.11

Target benefits from growing revenues and increasing reinvestment in the business, wider gross margins than its peer group, and decent operating margins with a negative growth trend. The company's financial statements show generally positive cash flows and healthy leverage. However, the firm has declining EPS growth.

Target's Valuation Is in Line With Its Sector Averages:

Target has a trailing twelve month P/E ratio of 23.7, compared to an average of 22.33 for the Consumer Discretionary sector. Based on its EPS guidance of $10.17, the company has a forward P/E ratio of 13.6. The 9.8% compound average growth rate of Target's historical and projected earnings per share yields a PEG ratio of 2.41. This suggests that these shares are overvalued. Furthermore, Target is likely overvalued compared to the book value of its equity, since its P/B ratio of 5.38 is higher than the sector average of 3.12. The company's shares are currently trading 92.4% above their Graham number.

Analysts Give Target an Average Rating of Buy:

The 31 analysts following Target have set target prices ranging from $130.0 to $220.0 per share, for an average of $173.44 with a buy rating. As of April 2023, the company is trading -20.2% away from its average target price, indicating that there is an analyst consensus of strong upside potential.

Target has an average amount of shares sold short because 2.2% of the company's shares are sold short. Institutions own 81.7% of the company's shares, and the insider ownership rate stands at 0.2%, suggesting a small amount of insider investors. The largest shareholder is Vanguard Group Inc, whose 9% stake in the company is worth $5,714,939,967.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.