Is Target Corporation (TGT) A Good Stock to Buy?

Many discount retailers got off to a slow start at the beginning of this fiscal year, and Target Corporation (NYSE:TGT), whose fiscal Q1 ended in early May, was no exception. According to the company’s 10-Q, revenue was about flat for the quarter versus a year earlier, with an increase in store count being offset by a small decrease in same-store sales. Thanks to higher interest expenses, Target recorded a 29% decline in earnings compared to a year ago and if we ignore the proceeds on sale of its credit card accounts receivable cash flow from operations was lower as well.

Target Corporation (NYSE:TGT) currently trades at 17 times its trailing earnings, a valuation which seems to indicate that the market is expecting the retailer’s prospects to improve going forward. Wall Street analysts predict that this fiscal year’s earnings per share will be about even with last year’s before the company significantly grows its EPS in the fiscal year ending in January 2015; as a result, the forward P/E is 13. That would place Target close to value territory though of course we wouldn’t have too much confidence in business suddenly picking up next year. As might be expected for a discount retailer, Target’s stock price has a fairly low correlation with market indices at a beta of 0.5. The company recently increased its quarterly dividend payments, but the yield remains unremarkable at 2.4%.

We track quarterly 13F filings from hundreds of hedge funds and other notable investors as part of our work developing investment strategies; we have found, for example, that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year (learn more about our small cap strategy). The largest Target Corporation (NYSE:TGT) shareholder at the end of March out of the filers we track in our database was John Levin’s Levin Capital Strategies, which reported a position of 1.9 million shares (find Levin’s favorite stocks). Billionaire Ken Griffin’s Citadel Investment Group was a buyer of the stock in the first quarter of 2013 (see Griffin’s stock picks).