2011 -- so far -- has been a mixed bag for retailers. While some retailers have borne the brunt of higher gas prices curtailing consumers' discretionary spending power, a few others have benefited from hungry consumers looking for great deals.
Budget-conscious consumers have made a bee-line for stores such as Family Dollar (NYSE: FDO ) and Dollar General (NYSE: DG ) for rock-bottom prices. In general, that has helped these discounters post impressive numbers despite the recessionary environment.
Minnesota-based Target (NYSE: TGT ) is no ultra-discount retailer. But like its penny-pinching brethren, it's a big-box retailer that is finding itself doing well these days, in spite of the aforementioned economic troubles.
Let's take a closer look at Target's fundamentals and see what it has in store for the rest of the year.
Income matters
Target's five-year annual revenue growth rate stands at 4.6%. However, in the last twelve months, that growth has almost halved to only 2.4%. At the same time, Target's operating margin has declined to 7.8% from 8.5% in 2007, as the company has offered deeper discounts on its products to attract budget-conscious shoppers to its stores.
But all is not lost. In fact, the company is taking active measures to shore up its top line. Target's PFresh stores, which offer fresh food and produce at low prices, is already showing promising signs. Traffic at stores has increased since the program's inception.
Another initiative driving customers to Target stores is its 5% REDcard Rewards program. Target is also considering opening a smaller-format store across the U.S. to drive greater revenues -- an endeavor that bigger rival Wal-Mart (NYSE: WMT ) has recently been undertaking. It's reasonable to expect that as these programs gain traction, they'll help push up sales even further.
The company is also expanding its operations to Canada in 2013, where it plans to open 220 stores.
Value and yield
Target's trailing free cash flow stands at $2.8 billion, which is pretty darn high for a company with a market cap of $33 billion. With a forward P/E of 10.9, the company looks less expensive than its peers. Wal-Mart's forward P/E, for instance, stands at 11.0 whereas Costco's (Nasdaq: COST ) is at 21.5.
On a free cash basis, Target is much cheaper than its peers with an EV/FCF ratio of 16.8. Wal-Mart's ratio stands at 19.4, whereas that of Costco is at 19.6. Obviously, Costco is a dream retailer to own right now. But just because you can't take the head cheerleader to the prom doesn't mean you shouldn't go. Target appears to be a fine stock to own right now.
To add to this, Target has raised its quarterly dividend by 20% recently. Its forward annual dividend is $1.20, for a reasonably good yield of 2.5%. Considering the price of the stock and the returns on offer, Target looks like a good stock to hold.
The Foolish bottom line
Investing in the retail sphere could be a dicey proposition at the moment, but you can't really ignore a fundamentally strong company. Considering the price of the stock and its growth plans, Target looks set to continue its strong performance forward. It definitely warrants a closer look, so add it to your watchlist and receive all our Foolish content on the company. Just click here.
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