If there’s a reason to buy Target, it’s this
There are many reasons to love Target (NYSE: TGT). Many investors agree and the stock has almost tripled in the past three years. But there is a reason that stands out and gives me confidence in the prospects for the company. Target has a fairly significant advantage over similar businesses, which worth buying.
Planning for the future
COVID-19 has been difficult for businesses and individuals. But Target made life a little easier for customers during the pandemic and gained market share in the process. Other companies that sell essentials, like Walmart (NYSE: WMT), also performed well, but not as well as Target.
The secret to Target’s success began long before the word “pandemic” became part of our daily lexicon. Target has invested in its omnichannel capabilities anticipating the digital revolution, and that gives it an edge now that blocks and social distancing are the norm today. CEO Brian Cornell said, “Our strong results in 2020 reflect the benefits of our multi-year efforts to create a sustainable and flexible model, with a differentiated assortment and a suite of industry-leading execution options. “
More importantly, it is also a gateway to the future success of the business.
Deliver when people need it
Target sales have increased throughout the pandemic. Digital options, led by same-day services, were key drivers, but in-store sales were also strong.
|Metric||Q1 2020||Q2 2020||Q3 2020|
|Growth of comps||11%||24%||21%|
|Same day service growth||278%||273%||217%|
While holiday sales results won’t be released for a few weeks, the company has already announced a record-breaking Cyber Monday.
The drive-up itself increased 500% in the third quarter. Digital, especially same-day services, is clearly resonating with customers.
What are same day services?
Target acquired Shipt same-day delivery services in 2017 for $ 550 million, and this has been a key part of its success.
The mega-retailer offers more than 65,000 products through Shipt, recently adding clothing in addition to groceries, baby products, beauty products, and more. It also plans to add other products. Target makes purchasing easy, with a “Deliver Same Day” button if the service is available in a customer’s zip code.
Additionally, Target has found a way to make same-day delivery profitable, using local stores for order fulfillment instead of fulfillment centers. Eighty percent of sales were made in-store in the first quarter of 2020, and that figure rose to 95% in the third quarter. Orders are reaching customers faster, and this lowers shipping costs, contributing to an increase in third quarter adjusted earnings per share of more than 100% to $ 2.79.
Where is it going?
The shift to digital shopping has been accelerated by COVID-19, but the latest shopping trends are a mix of digital and physical, and that’s where Target shines.
Customer feedback has indicated more contactless shopping options, and Target is introducing improved features like self-checkout lanes and scanner-less car rides, as well as various mobile wallets. According to the Wall Street newspaper, Amazon has tried selling its cashier-less technology to Target, but so far it has not announced any deals.
And there is more than one reason to be confident in the future of the business, complementing a strong growth trajectory. He has created a wide range of own brands with discounted prices that are popular with customers. It has also developed a small store format that works well in specific areas, giving it profitable leverage when locating areas for new store launches. Out of 30 stores opened in 2020, 29 were small stores. And its number of stores of nearly 1,900 is still paltry compared to Walmart’s more than 5,000.
Target stock is up 35% year-to-date, and I think investors should consider buy stocks now to benefit from new growth.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.