Why Now Might Be the Best Time to Buy Target Stock

Key Points

• Target had a better-than-expected quarter, and even the cautious guidance is good news for investors.
• Cash flow is sound, allowing for debt reduction and improved shareholder value in 2024.
• Analysts' sentiment is firm at Hold and forecast a 50% upside from critical levels. 

Target NYSE: TGT is not out of the weeds, but the signs are unmistakable. The market for its stock is bottoming. The caveat is that it may take time for the market and stock price to regain traction. Headwinds and clouds are on the horizon that will impact the price action in March, but even they have a silver lining. 

Target's headwinds are not business-specific but shared by industry peers. They may send the stock prices of Walmart NYSE: WMT, Costco NASDAQ: COST, TJX Companies NYSE: TJX and even Dick’s Sporting Goods NYSE: DKS into a deep correction, while Target’s stock price, which has already suffered years of bearish activity, is unlikely to fall much further.

Eventually, the headwinds will pass, and long-term-oriented investors with the foresight to buy in early 2025 will be positioned for leveraged gains aided by Target’s high-yielding dividend and share repurchases. 

Target Outperforms in Q4 and Issues Cautious Guidance 

Target’s Q4 and full-year 2024 results are not robust but indicate a bottom as organic growth begins to offset its business rationalization. The $30.92 billion is down more than 3.0 % compared to the prior year but outpaced the consensus by 30 basis points on strength in comp sales and digital channels.

Comp sales grew by 1.5% on an 8.7% increase in digital, offsetting slight in-store weakness. Same-day delivery is the report's star, rising by 25% compared to the prior year and expected to remain solid in 2025. 

Margin news is mixed but favorable to shareholders. The company experienced margin pressure at the year’s end and reported margin contraction but less than MarketBeat’s reported consensus forecast. The $2.41 in adjusted earnings is down almost 20% YOY but $0.16 better than expected by analysts, with earnings strength expected to improve in 2025. 

The guidance is why the stock price fell following the Q4 release. The company forecasts a solid 2024 with top-line growth near 1% and a wider margin but expects a weak Q1 due to softness in February numbers. The takeaway for investors is that soft Q1 figures are insufficient to upset the company’s financial strength and capital returns, which are critical to the stock price rebound. 

Target Improves Shareholder Value in 2024

Highlights from Target’s 2024 include improving balance sheet strength, a high-yielding dividend, and count-reducing share buybacks. Regarding the balance sheet, the company reports increased cash, inventory, current, and total assets with reduced long-term debt and relatively flat total liability. 

The net result is a 9.2% increase in equity despite the 1% quarterly reduction in share count and the dividend payment.

The dividend is worth 3.75%, with the stock trading near long-term lows, and the distribution will likely increase in F2025.

The payout ratio at the end of 2024 was less than 50%, a healthy level for a Dividend King after over 50 years of consecutive increases.

Analyst and institutional trends align with a market bottom.

The analysts’ trends include increased coverage relative to early 2024, a Hold rating with a bullish bias, and a steady consensus target forecasting a 50% upside from the critical support target.

The institutional trends include buying on balance every quarter in 2024 and the buying activity ramping to a multi-year high in Q1 2025. 

Target Stock Moves to Multiyear Low: Enters Buy Zone

Following the Q4 earnings release, Target stock fell and could move as deeply as the $100 level. The $100 level is likely the bottom for this market and an attractive entry point for investors. At that level, the stock will trade under 11x its 2025 earnings, rock bottom for a dividend-paying stock like this one.

The question is how long the market will wallow at these levels and when the rebound will begin. The rebound could start as soon as Q2 2025 when the FQ1 earnings report and guidance update are released.