Target Corporation (NYSE: ) was well placed in 2020 to profit from the pandemic thanks to its digital channel. Target is a US general merchandise retailer that has approximately 1897 locations.

The company’s growth has been strong over the past year but it is expected to grow by only 1% in the future. Therefore, we are neutral about the stock. (See Target stock charts on TipRanks)

Growth catalysts

Target’s retail business is growing at 4.5% annually between 2021-2026. While this doesn’t sound like much, it shows that the sector is still viable and healthy. 

With many businesses going online to make it easier for customers, the entire industry is experiencing major changes. Therefore, ecommerce is growing at a rapid pace. This growth is primarily due to the increasing use of smartphones. E-commerce has also seen an increase in popularity due to its convenience and ease of use.

Target is apparently successfully implementing its digital strategy. After a strong Q2 2020, Target’s online sales grew by 10%. The company’s same day services are a major growth driver for these online sales. 

A successful ecommerce strategy must be fast. Customers don’t like to wait for long for their order to arrive. The growth in these same-day services clearly demonstrates this. The growth rate was 55% in Q2 2021 and 270% in Q2 2020.

Target has 2.2% of all e-commerce sales due to its successful digital integration. This may not seem like a lot, but it is important to remember that retail has many players and Target actually ranks fifth (tied with Best Buy and BBBY). Home Depot Overall market share: (NYSE 🙂 This surpasses both Costco and Kroger, (NYSE:).

How to Measure Efficiency

Target has to ensure that it retains a significant amount of inventory for its continued success. In order to predict success, it is important that a company’s ability to move inventory quickly and turn it into cash. We will be using the cash conversion cycle to measure TGT’s efficiency. It shows how long it takes for inventory to become cash. This is how it works: 

CCC = Days Inventory Outstanding + Days Sales Outstanding – Days Payables Outstanding 

Target’s cash-conversion cycle takes -8 business days. That means the company converts its inventory into cash before paying suppliers. Target does not have to raise any funds to purchase inventory. The company can still move inventory and receive payments on its credit. Target’s suppliers finance the operation by essentially funding it.

Wall Street Take

Target is rated Moderate Buy by Wall Street based on the 14 Buys and four hold ratings it received in the three-months prior. The average Target price target of $284.29 implies 24.5% upside potential.

Last Thoughts

Target is seeing strong growth from its online segments, even though Target saw tailwinds. Future growth is likely to be only in the single digits. We believe that there are better opportunities in other areas.

Disclosure: Stock Bros Research had no position at the time this article was published.

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