Interestingly, Target’s (NYSE: TGT) stock regained most of the value it lost in the first half of 2020.
To elaborate, Target started 2020 at $126.07 on 2 January; fell to $91.04 on 25 March 2020 and rose to $121.70 on 17 July 2020 and $125.88 on 31 July. Hence, Mr. Market still believes in Target despite several months of a pandemic.
One reason for Mr. Market’s new faith in Target is online sales. For example, Target became one of eMarketer’s U.S. Top 10 online retailers for the first time in 2019. eMarketer predicts Target’s ecommerce could grow by 24% to $8.34 billion in 2020.
Target Turning stores into Fulfillment Centers
Consequently, Target’s share of the US ecommerce market grew from 1.1% in 2019 to 1.2% in 2020. In contrast, eMarketer estimates Amazon (NASDAQ: AMZN) controlled 38.7% of the US ecommerce market in 2019.
Importantly, Target was expanding its online capabilities before coronavirus. For instance, Target is trying to remodel 1,000 locations to create mini distribution centers in its stores, SupplyChainDive reports.
Target management hopes to support free two-day and same-day delivery from the stores, SupplyChainDive reports. Target offers same-day delivery from 1,500 stores in 47 states.
Is Target Making Money?
The Target Corporation (NYSE: TGT) needs to increase its ecommerce because it is making less money.
For instance, Target’s quarterly operating income fell from $1.197 billion on 31 January 2020 to $468 million on 30 April 2020. In addition, Target’s quarterly gross profit fell from $6.342 billion on 31 January 2020 to $5.105 billion on 30 April 2020.
Similarly, Target’s quarterly revenues fell from $23.398 billion on 31 January 2020 to $19.615 billion on 30 April 2020. Plus, Target’s quarterly common net income fell from $834 million on 31 January to $284 million on 30 April 2020.
Is Target Generating More Cash?
Target’s quarterly operating cash flow fell from $2.958 billion on 31 January 2020 to $1.284 billion on 30 April 2020. Interestingly, Target’s operating quarterly operating cash flow was $323 million 30 April 2020.
Impressively, Target’s quarterly ending cash flow rose from $1.608 billion in $4.566 billion in the same period. Thus, Target has more cash.
Unfortunately, I think Target borrowed much of that cash. To explain, Target reported a $1.449 billion financing cash flow on 31 January 2020. The financing cash flow measures the amount of cash a company by selling debt or issuing bonds.
How Much Cash Does Target have?
Finally, Target’s cash and short-term investments rose from $2.577 billion on 31 January 2020 to $4.566 billion on 30 April 2020. Thus, Target can generate substantial amounts of cash.
I think this cash could help Target expand online because it could have the money to convert hundreds of stores to fulfillment centers. In addition, Target has the funds to buy or lease hundreds of delivery vans and hire thousands of delivery drivers.
Additionally, Target has the funds to expand its Shipt delivery platform. Shipt offers same delivery without a membership.
Is Target a Safe Investment?
Investors will wonder if Target is a safe investment because Amazon is annihilating brick and mortar retailers.
In particular, Amazon Prime’s U.S. membership grew to 118 million on 31 March 2020, Consumer Intelligence Research Partners estimates. Moreover ,the percentage of free Amazon Prime trials converting to full-time subscriptions grew to 70% in 1st quarter 2020.
Hence, Target’s most dangerous competitor is expanding its reach as coronavirus discourages Americans from shopping. Therefore, Target needs to shift to an online retailer and fast.
Under these circumstances, I think Target’s margin of safety is low. However, many investors still think Target is a safe investment.
Is Target a Good Dividend Stock?
Target (NYSE: TGT) will pay a 68₵ quarterly dividend on 18 August 2020. That dividend grew from 66₵ on 19 May 2020. Overall, Target offered a $2.60 dividend and a 2.18% dividend yield on 31 July 2020.
Thus, Target’s dividend is still growing. However, I think the risks Target faces make its stock too dangerous for ordinary people.
Originally published at https://marketmadhouse.com on August 1, 2020.