A survey found Target customers are more likely to use services like curbside and in-store pickup than the average shopper.
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Target was a major beneficiary of the Covid-19 pandemic, and while some other winners have lagged behind the market lately, its shares just hit a record high of more than $200. Stifel says to expect the rally to continue.
Analyst Mark Astrachan reiterated a Buy rating on Target (ticker: TGT) on Tuesday, while raising his target for the stock price to $230 from $220. He argues that the retailer will not only attract a good chunk of the latest round of economic-stimulus spending, but that market-share gains that it has made seem sustainable, especially because of a strong performance in digital orders.
That makes the shares look attractive even after their big gains. Target stock was up 0.3% to $198.21 in early trading. The shares have risen 12.3% since the start of the year.
He said a recent survey of shoppers found that Target customers were more likely to use same-day services, like curbside and in-store pickup, and to do so more often than both the average shopper and Walmart (WMT) customers. He thinks this behavior will continue, which would be good news for Target: Having consumers pick up orders is more cost-effective than shipping items to them, and encourages larger purchases.
The usage figures also speak to how investors may be undervaluing Target’s delivery service Shipt, he notes. While Instacart recently garnered a valuation of $39 billion, Shipt would only need to be worth roughly a quarter of that to notch a $10 billion valuation. That would be some 18 times what Target paid for it and 10% of the retailer’s current market capitalization.
Of course, while these services may be growing, Target still faces though year-over-year comparisons in the coming months, given that consumers lifted its sales as they stocked up ahead of lockdowns in 2020. Yet Astrachan argues that that headwind is already well understood by investors, while increased spending from the latest stimulus checks, and the need for refreshed wardrobes as the economy reopens, will offset some of that pressure.
All this leaves him confident that even with 113% gain in the past 12 months, Target’s “valuation multiple remains undemanding, trading at a discount to certain retail winners,” Astrachan wrote.
Write to Teresa Rivas at [email protected]
