HEDGEYE ANALYST:
Brian McGough, Managing Director of Retail (@HedgeyeRetail)
Target (TGT) is a stock that has a lot going for it at the moment. While we’re not of the opinion that the stock is going to pull a massive move and double in price within a one year timespan, several near-term factors will help drive margins at the mid-tier retailer.
First, crude oil is crashing. That has been obvious since the hysteria of the $108 a barrel price from earlier this year. With WTI crude now trading $80 a barrel, the fuel cost savings will be reflected in Target’s share price very soon if it follows in the footsteps of Walmart (WMT), which is up nearly 11% since the April breakdown of crude.
Another catalyst here is the mess going on at JC Penney (JCP) and the subsequent hemorrhaging of mid-tier market share along with Kohl’s (KSS). The shift we’re seeing is a consumer flight to stores like Ross (ROST) and TJ Maxx (TJX). Target will benefit from the change in sentiment and shopping.
Target’s last quarterly earnings report was a blow out. It’s weathering the retail storm quite nicely while companies like Bed, Bath & Beyond (BBBY) struggle to stay relevant and hold market share in the Home category. TGT remains a top five competitor in the space.
Lastly, TRADE (Duration = 3 weeks or less) and TREND (Duration = 3 weeks or less) support of $57.30 and $56.22, respectively, it is sitting at a point where the fundamentals and price mesh well within our framework.
You can really run the gamut with Target’s breadth of customers in terms of income level. People generally take a liking to the store, especially since it began touting itself as a clothing retailer that “gets fashion” over the last decade - hence why we are currently long TGT in our virtual portfolio.
