Target (NYSE: TGT) stands as a powerhouse in American retail. With nearly 2,000 stores across the country, it has become a go-to destination for shoppers seeking everything from groceries and household essentials to trendy apparel and home decor.
The stock’s journey over the past year tells an interesting tale. After peaking near $245 in late 2021, shares tumbled about 60% to around $100 by the fall of 2023 as consumers pulled back on discretionary spending.
More recently, though, the stock has rebounded, reflecting growing investor confidence in retailers.
Let’s examine whether Target represents a good value at current prices by looking at two key metrics.
First, let’s consider the company’s enterprise value relative to its net assets (EV/NAV), which currently sits at 5.39. That’s notably lower than the average of 7.33 among companies with positive net assets. That means you’re paying less for each dollar of Target’s assets than you would for the typical company.
But value investing isn’t just about buying cheap assets – it’s about finding companies that can efficiently turn those assets into cash.
Target has generated positive free cash flow in each of the past four quarters, with its quarterly free cash flow averaging 8.45% of its net assets. That’s slightly better than the 7.9% average among companies with similar cash flow patterns, telling us Target is more efficient than its peers at converting assets into cash.
The company’s third quarter results reinforce both its strengths and its challenges. While guest traffic grew 2.4% and digital sales surged 10.8% during the quarter, operating income fell 11.2% to $1.2 billion due to higher costs. Beauty remained a bright spot with more than 6% growth, while food and essentials saw modest gains.
Management’s outlook appears cautiously optimistic. They expect flat comparable sales in the fourth quarter but maintain their full-year adjusted earnings per share guidance of $8.30 to $8.90. Meanwhile, the company continues to make operational improvements, with its average delivery time now nearly a day faster than it was last year.
When we weigh all these factors, Target’s current valuation looks appropriate. The stock isn’t expensive enough to avoid, but it’s not cheap enough to make it a compelling buy. At $130 per share, you’re paying a fair price for a well-run retailer that’s generating $25.7 billion in quarterly revenue and has a clear strategy for navigating today’s challenging retail environment.
The Value Meter rates Target as “Appropriately Valued.”
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