LRT Capital Believes That Issues Affecting Target Corporation (TGT) are Temporary

LRT Capital Management, an investment management firm, released its July month 2022 investor letter. A copy of the same can be downloaded here. As of August 1, 2022, the fund’s net exposure was approximately 67.37% and the beta-adjusted exposure was 45.31%. In addition, you can check the top 5 holdings of the fund to know its best picks in 2022.

LRT Capital Management discussed stocks like Target Corporation (NYSE:TGT) in the investor letter. Headquartered in Minneapolis, Minnesota, Target Corporation (NYSE:TGT) is an American merchandise retailer. On September 9, 2022, Target Corporation (NYSE:TGT) stock closed at $173.65 per share. One-month return of Target Corporation (NYSE:TGT) was 0.15% and its shares lost 28.57% of their value over the last 52 weeks. Target Corporation (NYSE:TGT)  has a market capitalization of $79.119 billion.

Here is what LRT Capital Management specifically said about Target Corporation (NYSE:TGT) in its Q2 2022 investor letter:

“The Target Corporation (NYSE:TGT) operates retail stores that sell a variety of merchandise ranging from necessities such as food and hygiene products to discretionary products like children’s toys and electronics. The sale of this merchandise is done primarily through physical retail locations in all 50 US states. However, Target also sells its merchandise digitally through its online website which delivers merchandise to its customers in three ways: order pickup, drive up, and “Shipt”. The Target Corporation operates a single segment through 1,926 physical stores.

Target is one of the largest US brick-and-mortar retailers and has successfully adapted to the competitive environment in the age of Amazon. As of 7/15/2022, TGT shares are down 36% for the year and down 44% since their all-time-high last year. The business is experiencing issues that are temporary in nature and we believe that the shares present an attractive opportunity at current prices. Target performed exceptionally well during the Covid-19 pandemic and its aftermath. Unfortunately, the company was recently caught flat footed, as consumer preferences shifted towards more spending on services (such as travel), at the expense of physical goods. As a result, the company found itself with an excess of inventory which will likely pressure margins in the next few quarters. Target is not alone in this predicament as many retailers such as Walmart and Best Buy have experienced similar issues over the last few months. The Covid-19 pandemic created enormous difficulties for retailers in forecasting demand and appropriate inventory levels. Clearing excess inventory will pressure margins in the short-term, and while this is a clear negative for the company, we do not believe it detracts from the long-term attractiveness of the business. Target shares are currently “on sale” due to increased uncertainty about near-term operating margins – this we believe is an opportunity.

Weak consumer sentiment, a slowing economy, recession fears, along with a list of other problems have called Target’s margins and short-term profitability into question. Until the most recent earnings calls, Target and many other retailers were seeing record margins and consumer demand. This led to oversupplying of inventory with a now weaker consumer and that is temporarily damaging the operating metrics of Target and similar retailers. Target’s margins are among the highest in the retail industry, and although it will take a hit in the coming quarters the company’s operating margin will likely return to roughly 7% in the longer term…” (Click here to read the full text)

Target Corporation (NYSE:TGT) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 46 hedge fund portfolios held Target Corporation (NYSE:TGT)  at the end of the second quarter which was 50 in the previous quarter.

We discussed Target Corporation (NYSE:TGT) in another article and shared Smead Capital Management’s views on the capital. In addition, please check out our hedge fund investor letters Q2 2022 page for more investor letters from hedge funds and other leading investors.

Disclosure: None. This article is originally published at Insider Monkey.