Image Source: Unsplash

It has been a challenging past few years for Target (NYSE: TGT) as the big box retailer has been hurt by a variety of issues, including inflation, as it has not been able to compete with the lower-cost retailers. But there have also been boycotts over its diversity policies, inventory issues, and other factors that have set the company back.

There may have been a glimmer of hope in the third quarter as Target beat earnings estimates for the first time since the first quarter of this year. The stock price was basically unmoved, which might be considered a win for a stock that is down 34% year-to-date and 43% over the past 12 months.

• Revenue: $25.3B, down 1.5% year-over-year. This was essentially in line with estimates of $25.3B.
• Net earnings: $689M, down 19% year-over-year.
• Earnings: $1.51 per share, down 18% year-over-year.
• Adjusted EPS: $1.78 per share, down 4% year-over-year. This beat estimates of $1.71 per share.

The retail chain saw comparable store sales drop 2.7%, which means that the existing stores saw sales drop. But there were some bright spots as digital sales increased 2.4%, led by 35% growth in same-day delivery through its Target Circle 360 membership. 

Also, food & beverage and hardline comp sales grew in Q3, offsetting weakness in the broader discretionary portfolio.

In addition, Target is having success in its non-merchandise revenue generation through its Roundel advertising, third party marketplace channel, and memberships. This segment saw 18% revenue growth.

Lowering prices, investing $1B in capex

Target is in the process of a leadership transition with current COO Michael Fiddelke set to take over as CEO from retiring Brian Cornell in February. But changes are already underway.

We’re laying the foundation for a stronger, faster and more innovative Target. It’s grounded in our purpose of bringing joy to our guests and focused on growth,” Fiddelke said.

A big change is an initiative to lower prices and expand its offerings. It will offer more than 20,000 new items this holiday season, twice as many as last year, with half of the Target exclusives. It is also rolling out lower prices on thousands of items including Thanksgiving meals for 4 under $20. In addition, it is expanding its next-day shipping.

Further, Target is invested $5 billion in capital expenditures to support new stores, store remodels, enhancements to the store experience, technology, and digital fulfillment capabilities.

Is Target stock a buy?

Target maintained its sales guidance for the full fiscal year, but lowered its earnings guidance. It anticipates a low single-digital decline in sales and EPS of $7.70 to $8.70, down from $8 to $10. Adjusted EPS is expected to be $7 to $8, down from $7 to $9.

Target stock is really cheap, trading at 10 times earnings. It should be as the stock has been declining since 2001. Target is also a Dividend King, raising its dividend for the 54th straight year, which speaks to its stability.

It seems like the new leadership with its three key priorities — solidifying its merchandising authority, elevating the shopping experience, harnessing the power of technology — has the store headed in the right direction. The thing is, it could take some time, particularly moving into a challenging environment.

Target stock is cheap, but is it a good value yet? Investors may want to watch for more signs of progress in the coming quarters.

More By This Author: