Target has obviously been a part of some very intense headlines this year – Data breach on credit cards, as well as CEO stepping down from the company. I have actually had this analysis in draft form and then last Tuesday – provided even more great news for me to hold off on publishing the article. Here is my Target (TGT) stock analysis and my decision to purchase or not to purchase:
From using our Dividend Stock Screener attributes, let’s perform a target stock analysis:
Dividend Increases: Ding Ding Ding Ding! Here we go folks, come on down to Target, where we have raised your dividend for 42+ years, let me repeat that – 42+ YEARS! And wow – what an amazing news article on Tuesday this past week – increasing their dividend a whopping 20.93% from the current dividend – $0.43 to $0.52, incredible! Which as of the close, pushed the yield to 3.63%. My new feature that I look at is HISTORICAL yield over 5 years, which is quite incredible when you look at it. Target’s 5 year dividend yield through yesterday’s close = 2.12%! Think about this – they are yielding 3.63% now when historically, they have yielded barely over 2… aka this area receives the check box.
Price to Earnings (P/E) Ratio: Current share price at the end of Friday’s close = $57.23. Q1 diluted earnings per share = $0.66 from their 10Q filing, which their two bigger quarters is typically the summer quarter and winter quarter. With that being said, $0.66 annualized (Times 4) = $2.64. However, I believe EPS will be higher going forward, and would place, conservatively, at least two quarters coming in 10 cents higher per Q or $0.76 X 2 + 0.66 X 2 = $2.84 on the year. Price to earnings ratio on this = 20.15. However, the prior year TGT EPS was at $3.70, making the P/E ratio = 15.46. (Further, analysis have estimated $4.35 for the FY 1/2016) We will average the two and conclude on 17.80 as the P/E currently – semi forward looking and based on previous quarter results. With the S&P at a 19.32 based on www.multpl.com, this also received the check in the box.
Dividend Yield: I, of course, like to see the dividend yield above the S&P 500 as a whole, which currently is at 1.87%. Therefore, Target, of course, kills this. An, as stated earlier – they have increased for over 42 years (an aristocrat) and pumped it up by 20%, with the yield at 3.63% = being 60% higher than the 5 year average = check in this box.
Payout Ratio: Based on my earnings projection of $2.84 and the average analyst at $3.70, the average of these two = $3.27. The current dividend is now $2.08. This calculates out to 64% roughly. Slightly higher than what we like to see at 60% and below, but this could deal with me placing less emphasis on the prior year $3.70 eps mark and the projected over $4 eps mark. Actually, I am being too conservative it appears here, as there were many one time costs with the data breach bringing down EPS during the first quarter. I would say EPS should be much stronger going forward, as well as further reduction in the workforce to reduce expenses. This payout ratio, confidently, will be below 60%.
Conclusion: Wow.. this is an incredible viewpoint from the financial status/being of Target. I know they have had 3 big news announcements now: Security/Data Breach – which I feel has not impacted consumers from my conversations with heavy Target lovers, Step down of the CEO and the 21% dividend increase. I feel as though Target is cleaning it’s act up, giving more back to the shareholders and strengthening their management. The board wasn’t happy with Gregg’s (old CEO) performance as CEO and his stepping down wasn’t solely due to security breach. Gregg was around 60 years old, and I feel a younger, more knowledgable CEO will be a better fit. Further, they are reducing their workforce, which is tough to see from an individual standpoint, but does reduce the cost/expense line item and will boost EPS going forward. This item is on my buy list and I may initiate a position relatively soon. What are you – the readers, thoughts on Target? Would you buy in? Scared of the later impact of the breach? Please comment and thanks for stopping by!