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Retailers That Beat on Earnings – Are Target Corp. (NYSE:TGT) & Kohl’s Corp. (NYSE:KSS) Attractive Investment Opportunities?
Target Corp. (NYSE:TGT) & Kohl’s Corp. (NYSE:KSS) reported yesterday that revenues and profits rose in the 4th quarter behind strong holiday season sales, helping lift their share prices in yesterday’s trading. Shares of Target rose 3.5% to $52 and shares of Kohl’s rose 3.4% to $53.80.
Target’s Q4 revenues increased 2.4% to $20.66 billion, on 2.4% comparable store sales, driven by the company’s two major initiatives – expansion into fresh food (P-Fresh concept) and 5% discount offered on transactions using the Target branded credit cards. Earnings increased 10.5% to $1.03 billion, or $1.45 per share in the quarter, helped by robust improvement in its credit card segment which saw profits almost quadrupled. We believe its traffic driving strategies will continue to benefit Target and position them as a stronger player in the competitive retail sector going forward. In fact, Target expects revenue to reach $100 billion and earnings per share to double within the next seven years, partly bolstered by its plans to expand to Canada by 2013.
Kohl’s revenues climbed 6% to $6.04 billion in Q4. Comparable store sales increased 4.3%, as number of transactions rose 5.4%, partially offset by a 1.1% decline in average ticket. Kohl’s earned $493 million, or $1.66 per share in Q4, 14% higher than the year ago quarter. While management said they are not seeing robust growth in the retail market, the company continues to enjoy strong comp sales behind its compelling range of brands, particularly its private and exclusive brands that now account for about 48% of its total sales. More importantly, Kohl’s announced on Wednesday its first ever dividend, and it said Thursday that it was increasing its stock repurchase program to $3.5 billion, from $1.0 billion in the current authorization. The quarterly dividend will be 25 cents per share. Kohl’s portfolio of brands will continue to provide the company a competitive edge over its rivals in the short to midterm, as value conscious shoppers continue to seek quality clothing at bargain prices.
As both companies are positioned to succeed in the longer term, we also believe their share prices are inexpensive based on The Applied Finance Group’s valuation model.
Companies trading at a discount to its default intrinsic value have proven to be more likely to outperform than companies trading at a premium to its AFG default target price. We would like to reiterate our thoughts on these 2 companies as attractive potential investment opportunities. Both have solid management teams that understand how to create wealth for their shareholders and are currently trading at a discount. To gain access to our best stock picks and most extensive buy/sell lists, click here to sign up for our free weekly newsletter Investment Advisor Ideas.
Click Here to view this article in its entirety, including charts illustrating each company's Management Quality as well as Intrinsic Value relative to target price.
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What does your default intrinsic value say at $4/gal gas. Go look at Penny's guidance of .18 to .23 down from "con"sensus of .31. I don't believe KSS will be much different for the 1Q.
Every trip to Target is always a pleasant experience for me. Here's hoping they don't lose their way.