Target Corporation (NYSE:) lies amongst America’s largest retail companies, boasting a market capitalization of $117.8 billion. Target sells everyday necessities and trendy, distinctive merchandise, all at a discounted price, thanks to its extensive supply chain.

Target has an impressive track record of expanding successfully, with extraordinary shareholder returns. Target is officially a member of the S&P Dividend Aristocrat Index, which comprises companies counting 25 or more years of consecutive annual dividend increases.

Target shares have risen by over 60% in the last year. Target remains a fair value, but I don’t think so. Therefore, I believe Target stock is a good investment. (See Target stock charts on TipRanks)

Solid Performace Despite Logistical Challenges

During the course of the pandemic, retailers have experienced logistical struggles, even resulting in empty shelves, in some cases. Target reported record sales in the last year despite this, customers valuing the quality and convenience of Target’s stores.

The company’s Q2 2021 revenues were $25.2 billion, which is 9.5% more than the Q2 2020. The operating income grew 7.2% from the previous year, rising from $2.3 billion up to $2.4 billion. Additionally, the diluted earnings/share grew 9.0% year-overyear, rising from $3.35 a $3.65 to 3.65.

Similar sales increased 8.9% in Q2, with comparable-store sales growing 8.7% while comparable digital sales increasing 10%. These figures highlight Target’s ability in the ecommerce space to gain market share and compete. They also remind investors about the strength Target’s retail presence within an ever-growing online space. This is very impressive.

Target’s Dividend and Valuation

As mentioned, Target has an extended dividend growth record. Investors were surprised by Target’s recent dividend hike, which increased quarterly payouts from $0.90 to 32.4%, in June. Target trades at an all-time low of just 1.5% despite the massive rise (the previous three dividend increases were only slightly more than 3%).

This could suggest shares may be overvalued. Target’s forward PE of 18.8 seems reasonable, on the other hand. The multiple shown is at the upper end of historical value for Target.

However, I believe the value of Target is still reasonable given its steady growth, excellent navigation through the pandemic, safe and growing dividend (likely not to accelerate as the last hike suggested), and high scale/moat/brand value. Let’s say Target decides to increase its dividend by a double-digit percentage going forward. This is possible given Target’s current payout ratio, around 20%. Investors should expect to see the PE increasing to the mid-20s in this scenario.

Wall Street’s Take

Turning to Wall Street, Target has a Strong Buy consensus rating, based on 14 Buys, four Holds, and zero Sells assigned in the past three months. At $284.29, the average Target price target implies a 17.75% upside potential.

Disclosure: Nikolaos Sismanis didn’t hold any positions in the securities discussed in this article at the time it was published.

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