Target Is About To Rocket Higher (NYSE: TGT)

Something For The Market To Like

ESG issues, environment/social/governance, are becoming more and more important to today’s investors. Gone are the days of robber-barons, unsustainable ecological exploitation, and slave-like working conditions. In their place is a new breed of CEO, company, and investor, a breed determined to set the moral compass for businesses and investors to come. And Target is (TGT) on the cutting edge of that trend, at least in one regard.

Target has been working on a three-year plan to raise wages and benefits for its employees. The plan got a boost this year when the pandemic set in, Target gave its employees a temporary $2/hr raise with the intent of making it permanent by end-of-year, and today accelerated its plans again. Target will start paying all employees at least $15/hr starting July 5th. In addition, employees will receive a $200 thank-you-bonus for their efforts during the crisis and access to company-sponsored health benefits. You go Target.

Target Is Just Hitting Its Stride

Target has been growing revenue and earnings on a consistent basis since mid-2017 because of its relentless quest to improve comp sales, expand the footprint and, more recently, push into eCommerce. The company is expecting to see EPS dip 24% in the calendar 2nd quarter but so what? So are just about everybody else because of the pandemic. It cost money to cope with social distancing. What investors need to focus on is the rebound that is already underway.

The May Retail Sales figures are only the tip of the iceberg when it comes to how strong the recovery is. Within the report, there were a few bright spots including home improvement (up 16% YOY) and eCommerce (up 31% YOY).  And not only are retail sales coming back, so too is the labor market. Along with them, pent up demand within the housing market has been unleashed and fueled by a new desire to live in the suburbs.  All of which points to strength for Target.

Looking forward, revenue is expected to grow on a YOY basis this year and next, despite the pandemic. More importantly, revenue and EPS will both grow over the two-year period by high-single-digits proving the pandemic was merely a road-bump. Based on the trends, particularly in eCommerce, and the outlook for social distancing (we’re going to be doing it a while) Target looks well-positioned to continue delivering shareholder value for the foreseeable future.

The Dividend - Something For The Market To Love

If the ESG angle is something for investors to like, and the revenue outlook something to rely on, it is the dividend investors should love. To put it simply, Target is a Dividend King. Dividend Kings have been raising their dividends for at least 50 years which is an awesome feat when you think about it. Target has been raising its dividend every year since 1968. Its distribution plan has survived Civil Rights, the Vietnam War, Hyper-Inflation, the Oil Embargo, Iran, Afghanistan, the Cold War, the Tech Bubble, 9/11, the Housing Bubble and it will survive COVID-19. Don’t forget, there have been over a dozen major global health issues in the last 25 years alone.

At today’s share prices Target is paying about 2.5%. That’s not what I would call a high yield but it is better than the SPX average, much better than U.S. bonds, and about as guaranteed as a dividend can be. The company just raised its dividend with the last declaration, due to be paid September 10th, so there is time to get on board.

The Technical Outlook: It’s Only Halftime For This Rally

Target corrected in March just like every other stock in the market. Unlike most others, Target shares are already above the February highs and look like they are ready to rocket higher. One reason is that price action over the past few weeks smacks of consolidation. The consolidation looks a lot like a bullish triangle and if so, will lead this market higher in the very near future.

The indicators are consistent with strengthening support at this level so the ball is definitely in the bull’s hands. The stochastic is already firing a bullish crossover and a fairly strong-looking one so I expect to see price action continue to move sideways at least. Another confirmation of support at the current level would be my first signal to get into this stock, the next will be when price action exceeds the $124 level. After that, the long-term outlook is bullish with a move above $130 expected before the end of this year.