Paul Harris, CFATarget CorpTGTTOP PICKFeb 27, 2014

Retail has been hated this year, but TGT just reported a massive earnings blowout caused by good inventory management. 

It could hit $200. He's been very negative the consumer, but next year he expects retail stocks to do much better. He wants to add more Target.

It surged today after reporting. Target has lagged its peers because it hasn't produced positive same-store sales, a key metric, in ages. They reported big profits, though same-store sales and total revenue were okay and in-line. But they slashed inventories 14% YOY, less theft and transport costs normalize. Huge earnings beat. Pays a 3.4% yield which will look more attractive if the Fed holds rates, and if inflation declines, then the consumer will have more spending money.

Shares have been punished. If you really want retail, go to Amazon, TJX or Costco.

Not a value trap, but not one he'd buy. They household needs and wants, a 50/50 mix, are seeing a sharp decline in wants sales, though single-digit growth in needs. Not great shareholder returns, because e-commerce has taken share from bricks-and-mortar, which is Target's business.

Stress on consumers will benefit low cost retailers. 
$100 billion in sales very strong base.
Margins improving as supply chain difficulties improve.
Current share price a good place to buy.

Trades at a premium to historical multiple. Missteps. Inventory has caused problems. 

They have troubles now, and was downgraded it, but it still offers a strong value proposition. They've done a great job on decreasing inventory, -16% last quarter. Freight costs are declining.  They will have traffic issues, but long term the value will shine. Down 18% in the past month. She may buy more if it falls more.

Consumer staples are a bit expensive, but they beat EPS and are managing inventory better. It'll be difficult to reach their 6% margin target in this economy. Shares are up 8% YTD. Has a concern of weakening in the lower-end consumer, though.

It reports Tuesday. He's worried about the widespread slump in retail and that Target could revisit previous lows of December, but if so, then buy.

Today, an analyst raised the target on Target. Discretionary has done very well so far this year. Their inventory problem will eventually end as they try to return to 6% operational margin growth, which is pre-Covid. Trades at a market PE.