– Mass merchandiser with 2k retail stores.
– Stock beaten down due to temporary inventory issues that have depressed GMs and net income.
– Gross margin expected to mean revert to c. 29% historical levels from the current 22%.
– Trades at low valuation on temporarily depressed earnings.
– Target’s retail model is fundamentally more efficient than competitors and this should win them more customers over time.
– Unique and hard to replicate the combination of convenient multi-category one-stop shop retail model, experience owning/creating eleven $1B+ revenue brands, highly efficient & developed omnichannel capabilities and valuable store space.
– Trades at 13.2x on FY23 depressed earnings, with GMs temporarily at 22% vs 29% historically.
– Assuming GM mean reversion, 2026 EPS should grow to $16.5.
– At 15x PE, would be $248 stock.
Exp. gain: +56% to $248/share in 3 years.
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