Target Stock

Currently the Target Stores stock price is $46.55.  The Target stock performance over the past 5 years has been relatively unimpressive, coming up mostly flat.  Now there was a decent amount of dividends coming from the stock, but hardly enough to even keep up with inflation.  If you look at the Target stock price today, you’ll see some struggles in 2011.  The employment situation in the US certainly is having a direct impact on the bottom line of Target and it’s competitors.

Lots of people have inquired as to whether or not Target will continue to pay a stock dividend.  The stock has taken a beating in a relatively strong 2011 (down nearly 25% as of today).

Since August 2010, Target has been paying a $.25 quarterly dividend, or $1.00 annually.  At its current price that is around 2.5% annually.  Prior to its $.25 dividend, the company was paying $.17, so the jump was significant, in fact the highest increase the company has ever had.

It’s hard to say if this is sustainable.

This was not a pretty week on Wall St.  With major drops after Chinese growth is called into question, the market looked very anemic.  On the whole, the Dow dropped a whopping 4.5%.  Target stock, however, held its own.  The retailer significantly outpaced the market falling only 1.92%.  In terms of news from this terrible week, we heard of the store’s first opening in the New York City borough of Manhattan.  In addition, the stock earned a positive outlook from an analyst at Piper Jaffray who reaffirmed the overweight label for the stock, while dropping the target price to $59 because of a more cautious macroeconomic outlook.

What’s the crashing to the floor you hear?  Oh ya that’s retail stocks taking a drubbing today in the market.  While the market is down around 1.5%, Target stock closed down 3.68%.  Wal-Mart also underperformed the market down nearly 2% and Costco was down nearly 3%.  Another day like today on Friday and Target could see a 10% decline this week.  There may be a decent technical area for the stock to bounce at $50, but is the market telling us something much bigger?  Volume on today’s drop was not light, nearly 50% higher than average daily volume, which is not an encouraging sign.  How the week ends will be key, but be wary of a bump back on low volume.

In a concerted effort, some retailers are attempting to win customer loyalty and increase revenues in ways other than price cutting.  A first year business student would tell you that there are many ways to compete and price is often the weakest.  The problem with competing on price is that its the easiest way to compete.  Other ways, like customer experience and much more difficult.  Stores, like Target, are not simply cutting prices, but working through loyalty discounts.  In essence, target is essentially still working on price, but that’s another story.  Target will be offering 5% cash back to their credit and debit card holders.  That’s a significant amount and a nice deal for those users.  Investors could see improvements on the bottom line if these loyalty programs work.

As many analysts are growing increasing optimistic about target stock, one of the items that seems to really be helping the company is its cash position.  Given the uncertain credit times having a nice (and growing) amount of cash on hand is very important.  In the first quarter of 2010, Target’s cash position increased significantly at a 16% rate.  They did this while also retiring over $1 billion in debt to further strengthen its financial position.  In  addition, the company made a token gesture in repurchasing just under $400 million of its outstanding shares.  All of this is very positive news, but the store must keep consumers coming in and its sales reports glowing in order to reassure investors.  From a balance sheet standpoint, however, things look strong.

Target stock remains committed to returning a strong dividend to its investors.  The recent increase raised its quarterly dividend nearly 50% to $0.25.  This marks 43 consecutive years that the company has increased its dividend.  This puts the total dividend for the company nearly to 2 percent.  This is a strong record and commitment to being an income stock.    With the relatively healthy dividend and low price-to-earnings ratio at the moment Target looks to be an attractive investment at this point.  As a retailer, however, it remains highly sensitive to consumer income and tastes.  It tends to lose sales more quickly than its peers during economic downturns and is often seen as the ‘fancy’ Wal-Mart.

On August 18th Target will release its second quarter 2009 earnings report.  This report will be followed by a conference call with analysts later in the morning.  Target stock had an amazing July, rallying with the stock market ending the month up nearly 13 percent giving it a YTD return of over 26 percent.  This puts the stock at its highest levels since early October 2008 right before it went into a free fall with the rest of the stock market.  The company is still pushing expansion and hopes to open over 20 new stores in the upcoming year.  That’s a significant amount in a an economy mired in unemployment and recession, but management remains confident in its growth plans.

Target shareholders voted overwhelmingly to keep the four incumbent board members Mary N. Dillon, Richard M. Kovacevich, George W. Tamke, and Solomon D. Trujillo.  The entire slate of Pershing Square directors received less than 20 percent of the vote, except for James L. Donald who received 22 percent.  William A. Ackman earned 19 percent.  In so doing, the shareholders at the annual meeting also voted to reject a plan to increase the size of the board of directors for Target Corporation.

After settling with Sears / K-Mart, the California Attorney General’s office has his sites set on Target stock.  K-Mart recently settled a case with California for $8.7 million over the dumping of illegal substances in local landfills.  Apparently, Target Corporation is guilty of similar transgressions.  It is unclear if Target will be offered a settlement, or even want to settle, as K-Mart did.