Industry landscape will become more competitive in the upcoming quarters.
TGT should make more investments to strengthen its e-commerce platform and address competition.
Stock is trading at a forward P/E of 13x, versus WMT’s forward P/E of 15x.
Target Corporation (NYSE:TGT) is among the leading retailers in the U.S. The company has done well in the recent years to improve its performance. The company’s decisions to exit from Canada, focus on important product categories and sell its pharmacy business positively affected the stock price. However, in the near future, the company will face challenges as the industry environment is becoming more competitive. Increase in promotional activities in the industry, expansion of grocery stores by competitors and Wal-Mart’s (NYSE:WMT) growing e-commerce presence will challenge TGT’s performance in the future. Moreover, as competition will become more intense, the company’s profit margins will be negatively affected, which will weigh on its stock price. The stock is trading at a forward P/E of 13x, versus WMT’s forward P/E of 15x.
Financial Performance and Catalysts
The company’s management has taken correct strategic decisions in the recent years, which positively affected its performance. The company reported EPS of $1.23 for 2Q16, beating the consensus estimate by $0.11. Revenues for the quarter came out to be $16.17 billion, in line with the consensus estimate. However, in the future, the company needs aggressive efforts to secure its long-term growth as the industry environment is becoming more competitive. Also, food deflation, wage pressure and expansion of grocery stores by competitors will adversely affect TGT’s top and bottom line numbers.
In efforts to improve store traffic, WMT, Kroger (NYSE:KR) and Dollar General (NYSE:DG) have reduced prices. Pricing reduction measures are increasing in the industry. Kroger has announced to cut prices for almost 1,000 popular grocery items, and Dollar General has also announced to increase its promotional activities to improve its store traffic. Also, WMT has increased its focus on improving its store traffic by lowering prices over the next three years. WMT has plans to invest several billion dollars in the near future to reduce prices. Also, store expansion by competitors will adversely affect TGT’s store traffic. Kroger is growing its square footage. Also, Aldi and Lidl are expanding their presence in the U.S. Aldi currently has almost 1,500 stores in the U.S. and it plans to open 500 new stores by 2018 under its $3 billion expansion program.
Fuente: Seeking Alpha
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