When it comes to stocks that could grow fivefold in the next five years, Target (TGT +0.19%) It may not be at the top of your list. Recent bias likely bears some of the blame. Despite the discount retailer surging in recent months, shares are still trading about 20% lower over the past three years and more than 40% down from five years ago.
However, a new CEO, a long record of dividend growth, and the series’ historic all-weather appeal could provide a strong market boost over the next decade. Let’s look at a bullish scenario where the target is a five-bagger by 2036.
Image Source: Getty Images.
It starts with change
CEO Michael Fidelke started his reign in January, and he’s not phoning it in. He is targeting four areas for improvement:
- trading authority
- Enhancing and differentiating the shopping experience
- advancing technology
- Investing in Target’s teams and communities
This is not just aspirational rhetoric. The retailer is targeting $2 billion of incremental spending on store renovations and operational improvements. Target’s guidance calls for a 2% increase in net sales this year, a figure that may seem unimpressive until you consider it has had modest top-line declines in three consecutive fiscal years. Net sales were positive in February – the first month of the new fiscal year – so Target is off to a strong start even before its 10-figure turnaround strategy begins.
today’s change
(0.19%) $0.24
current price
$127.38
key data points
market cap
$58B
day limit
$125.31 -$127.83
52wk range
$83.44 -$133.10
volume
134K
average volume
6
gross margin
25.44%
dividend yield
3.57%
It continues to beat the dividend drum
target stock It may not look like royalty in recent years, but it wears a crown. the goal is one dividend kingHas been promoting its quarterly distribution for 54 consecutive years. And there is a good possibility that this sequence will happen after 64 years in 2036.
You could argue that rising gas prices, the war in Iran and inevitable economic headwinds over the next decade will challenge its hold on the payments throne. But have you seen what Target has gone through in the last 54 years?
- Black Monday market crash of 1987
- The Great Recession, triggered by the subprime lending crisis in 2007
- The COVID-19 pandemic sucker punch of 2020
- Recently, net sales have declined in the last three financial years
Target has weathered all these storms and others and continued to post annual dividend increases. Even after the recent surge in the stock, it still gives a good return of 3.6%. Despite lackluster performance in recent years, Target’s payout ratio of 55% remains very manageable.
The company has enough dry powder to keep its income investors around as it invests to bring growth investors back into its business. This is a good place to target. Even if some of the new initiatives work, it will boost sales and also improve the chain’s margins.
The stock is trading at less than 16 times the midpoint of this year’s earnings guidance, a steep discount for the nation’s largest retailer. Sales will not increase fivefold in the next five years. They don’t need to do that. The market will happily pay a market premium for Target again as profitability increases and sales accelerate.
It’s time to shop.