Is Target (TGT) Overpriced?

Mr. Market paid $158.18 for Target (TGT) shares on 10 March 2023. Value investors will ask if that price is high?

Target is a growing company. Its quarterly revenues grew from $30.996 billion on 31 January 2022 to $31.395 billion on 31 January 2023. Yet the quarterly revenue growth rate fell from 9.38% in the quarter ending on 31 January 2022 to 1.29% a year later.

I conclude Target is recovering from COVID-19, but its growth is slowing. Interestingly, the Christmas shopping boost at Target has returned. However, Target is making less money.

Target (TGT) is making less money

Target Corp (NYSE: TGT) makes less money. For example, Target’s quarterly gross profit fell from $8.235 billion on 31 January 2022 to $7.449 billion on 31 January 2023.

Similarly, Target’s quarterly operating income fell from $2.095 billion on 31 January 2022 to $1.159 billion on 31 January 2023. Hence, inflation is not helping Target.

Yet Target generates a little more cash. For example, the quarterly operating cash flow rose from $3.028 billion on 31 December 2022 to $3.466 billion on 31 December 2023. Impressively, the quarterly ending cash flow rose from $158 million on 31 December 2022 to $1.275 billion on 31 December 2023.

Is Target (TGT) borrowing money to survive?

Unfortunately, Target (TGT) got that cash by borrowing. Target reported a $1.023 billion quarterly financing cash flow on 31 October 2022. In 2022, the quarterly financing cash flow went from -$1.806 billion on 31 January 2022 to -$990 million on 31 January 2023.

Notably, Target’s total debt grew from $13.72 billion on 31 January 2022 to $16.139 billion on 31 January 2023. I think Target is borrowing money to survive, which is bad.

Moreover, Target has less cash. Its cash and short-term investments fell from $5.911 billion on 31 January 2022 to $2.229 billion on 31 January 2023. Cynics will say Target is burning cash to survive.

What Value can Target (TGT) offer?

Target lost some value in 2022. Target’s total assets fell from $53.811 billion on 31 January 2022 to $53.335 billion on 31 January 2023.

Therefore, I see nothing at Target (TGT) that’s worth $158.18. I advise investors to avoid Target because the company is losing value.

Moreover, I think Target’s 1,948 stores and 51 supply chain facilities in the United States are losing value. I think the stores are losing value because Target is generating less money from them. Plus, Target is borrowing money.

Why is Walmart Losing Value?

Target stores are losing value for several reasons. Those reasons including growing online retail, intense competition from Amazon (AMZN), and rising operations costs.

In particular, retail industry wages are rising as stores compete for scarce labor. For example, Walmart (WMT) raised its entry level US wage to $14 an hour in January 2023, CNBC reports. This gives 21% of Walmart’s US workforce a raise. Walmart’s average US wage rose to $17.50 an hour in January 2023.

Theft is another threat to Target. Target could have lost $600 million to “missing inventory” (a euphemism for theft) in 2022, CEO Brian Cornell claims. Cornell told reporters he thinks organized crime groups are looting Target stores.

If Cornell’s claims are true. I think Target will have to close stores in high-crime areas or increase security. Installing cases to lock merchandise in and hiring guards. Other expensive propositions include surveillance systems and alarms to catch thieves.

Notably, Walmart (WMT) will close all of its Portland, Oregon, stores. Fox Business blames high crime in Portland neighborhoods for the closures. Walmart CEO Doug McMillon predicted “prices will be higher and/or stores will close,” because of crime on CNBC in December 2022.

Investors need to Avoid Target (TGT)

I think investors need to avoid Target (TGT) because it will keep losing money.

In particular, I think Target’s $1.08 quarterly dividend is under threat. Target has scheduled ten $1.08 quarterly dividends between 8 March 2024 and 10 March 2026. Target reported a $4.32 forward dividend and a 2.64% forward dividend yield on 8 March 2023.

My advice is to avoid Target because I think this company will keep losing money for the foreseeable future. Moreover, I cannot see how Target can grow in today’s retail environment.