Keep an Eye on Target in 2012

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Discounter Wal-Mart (NYSE: WMT  ) received plentiful attention for difficulties with reinvigorating sluggish U.S. sales in 2011, but Target's (NYSE: TGT  ) malaise has largely gone under the radar. Still, investors need to ask whether Target can regain cheap-chic cache before purchasing shares for 2012.

Last September, the crazed consumer response to Target's Missoni for Target line served as a reminder of how exciting Target used to be. Target needs to get that mojo back on a more consistent basis. Recent rumors that Apple (Nasdaq: AAPL  ) might put mini stores within some Targets to increase its own retail reach is one way Target's cool factor could skyrocket again. Furthermore, if an honest-to-goodness Apple TV becomes a reality, Target could hit even more of a bull's-eye.

Target's not in the dire shape Sears Holdings (Nasdaq: SHLD  ) is in, with many investors wondering if the recent decision to close some Sears and Kmart stores is really the beginning of the end. Sears' hideous loss per share in the last 12 months speaks volumes about the company's dire situation as customers choose the other big discounters for their shopping needs.

Still, Target didn't really do much of anything at all in 2011; its share price reflects inertia, languishing by 11.4%. Compare that to Costco (Nasdaq: COST  ) , with its amazing 2011 sales growth (and 15% increase in stock price in the last year).

Let's compare Target's metrics to those of several other discounters over the last 12 months.


Revenue Gain (loss) %

Earnings (loss) Per Share

Gross Profit Margin %

Target 3.5% $4.30 29.9%
Wal-Mart 5.0% $4.40 25.0%
Costco 14.3% $3.32 12.5%
Sears Holdings 1.6% ($3.38) 26.7%

Source: S&P Capital IQ.

Target's results could have been worse, but they could have been better, too. The days when Target's cheap-chic flair gave it a sharp competitive advantage over Wal-Mart seem a bit more like a faded memory, even if Target retains an overall stronger brand reputation than Wal-Mart does.

Furthermore, Target may be a discounter, but its ability to woo more shoppers by lowering prices is hampered by the fact that Costco and Wal-Mart are both major players in that area. There's a reason that Costco's gross profit margin is so low (bolstering sales volume), and Wal-Mart's a force to contend with in any price war.

There's no reason to sell Target, but there's no incredibly compelling reason to buy its shares, either. Although Target's PEG ratio of 0.97 signals an undervalued stock, investors should wait for signs it's making more bull's-eyes when it comes to inciting excitement in shoppers.

Add Target to your Watchlist to track the ongoing developments, or download an absolutely free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail."

Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Costco Wholesale, Wal-Mart Stores, and Apple. Motley Fool newsletter services have recommended buying shares of Wal-Mart Stores, Apple, and Costco Wholesale. Motley Fool newsletter services have also recommended creating a diagonal call position in Wal-Mart Stores and a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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