Retail stocks have faced their fair share of challenges in 2023, from soaring inflation to labor issues and lingering inventory woes. However, as we head into the crucial holiday season against the backdrop of cooling inflation and a surprisingly strong U.S. consumer, it's worth taking a look at one dividend aristocrat in the retail space that's trading at a deep discount.
“Dividend Aristocrats” are members of the S&P 500 Index ($SPX) who have consistently raised their dividend payments for at least 25 years, giving them serious credibility for sound financial management, durability through all types of business cycles, and a commitment to rewarding shareholders. Here, we'll highlight one of these elite income stocks you can scoop up at a bargain this December.
TGT: Still a Good Value After Earnings Beat
Minneapolis-based Target Corporation (TGT) is a massive omnichannel retailer, with about 1,950 U.S. locations and a market cap of $62.41 billion.
Target's stock hasn't had the smoothest ride this year, down 10.9% in 2023 to lag the benchmark S&P 500 - but the shares gapped higher after a positive earnings surprise in mid-November, suggesting the selling may have been overdone.
In the third quarter of 2023, Target's earnings grew by an impressive 36% to $971 million, or $2.10 per share - comfortably surpassing analysts' expectations. This growth was fueled by tight inventory and expense management, which helped offset a quarterly sales decline.
Same-store sales fell by 4.9% in the three months ended Oct. 28, which Target attributed to more selective consumer spending and less frequent store visits. Despite this, Target managed to exceed Wall Street's quarterly sales expectations, thanks to strong purchases in high-frequency categories like food and beauty.
Looking ahead, analysts are targeting roughly 9% EPS growth for fiscal 2025.
The shares rallied hard after that earnings beat, but TGT is still attractively priced compared to its peers. Target's forward P/E ratio of 16.20 and forward price/sales multiple of 0.58 both represent a discount to the sector median for consumer staples stocks.
Plus, Target is currently paying out a quarterly dividend of $1.10 per share, resulting in a forward yield of 3.25%. That's backed by over 50 consecutive years of dividend increases - which means the company isn't just a Dividend Aristocrat; it's a Dividend King.
Target's dividend is on solid ground, too, as it's well-supported by earnings and free cash flow - indicating a strong foundation for maintaining and further increasing the payout. The payout ratio stands at 55.12%, leaving plenty of room to keep investing in growth while still giving back to investors.
What Do Analysts Expect for Target Stock?
Analysts are optimistic about Target's future. Recently, Wells Fargo analyst Edward Kelly upgraded Target from Equal Weight to Overweight, and raised the stock's price target to $148.00. Kelly's upgrade was based on the belief that Target has reached an inflection point on margins, clearing a path higher for the stock.
Target currently has an consensus "moderate buy" rating with an average price target of $150.52, indicating an expected 11% upside from current levels. Among the 29 analysts tracking the shares, 12 advocate for a “strong buy,” 3 say it's a “moderate buy,” and 15 suggest a “hold.”
Conclusion
To sum it up, Target stock is a value buy worth scooping up for investors looking to score a deal this December. After a challenging year, TGT delivered big on Q3 results, and offers a compelling valuation at current levels - not to mention that rock-solid dividend. This December, Target definitely looks like a standout stock pick among dividend aristocrats.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
