Target Corporation (TGT): Rewards Program, Canadian Expansion and E-commerce initiative will be the Growth Driver for This Stock

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Peer Analysis:

Costco Wholesale Corporation (NASDAQ:COST) is the other major player in the discount store segment. Costco Wholesale Corporation (NASDAQ:COST) has reported strong second quarter results, with sales up by 8% and earnings up 19% yoy. Due to its industry-leading prices, it has been able to retain and add new members, even as it hiked up its membership fee. The company is on track to open 30 new warehouses each year for the next five years, and it has been aggressively planning to expand in the international market. With less competition in the international market, it can achieve higher market share. According to the company’s management team, the product offerings at its retail stores and online stores are 80% different; it will not have any self-cannibalization effect.

Wal-Mart Stores, Inc. (NYSE:WMT) has been a leader in the discount store segment. As has been the story with most retail companies, Wal-Mart Stores, Inc. (NYSE:WMT)’s comp SSS declined in the 1st quarter. The revenue from both its US and international business also fell last quarter. With fewer new product offerings and discounts, the company will struggle to increase its revenue by more than 1%. In the coming quarter I  believe that Wal-Mart Stores, Inc. (NYSE:WMT)’s ROIC will keep on declining, as it has been for the past few quarters.


Target Corporation (NYSE:TGT) is trading at a discount when compared to its competitors. I believe its expansion plans in Canada and positive response from the Canadian custome will help the company improve its top line and bottom line in the coming fiscal year. The RedCard and Pharmacy reward program has helped it to retain and acquire new customers, and SSS will increase in the coming quarter. The strategy of opening CityStore and investing in e-commerce has shown positive responses, and e-commerce sales have grown by 15% YoY. I believe the company is poised to show higher growth in the coming financial year, which is why I recommend a ‘buy’ on this stock.

Gayatri Sharma has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale Corporation (NASDAQ:COST). The Motley Fool owns shares of Costco Wholesale.

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Gayatri is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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