Target (TGT 2.55%) proved itself to be a winning stock for investors during the early days of the pandemic. The company's digital sales platform and delivery options were just what shoppers were looking for as coronavirus cases soared -- contactless shopping was the priority for many. All of this helped Target increase its level of annual revenue by about $30 billion in just a few years.
But in more recent times, the company's earnings and stock price have suffered. The retailer has faced a variety of headwinds -- from pressure on the consumer's wallet to theft in stores and disappointment from shoppers about the general shopping experience. Target has recognized these and other problems and is taking major steps to turn things around.
Where will Target stock be in three years? Let's find out.
Image source: Getty Images.
The Target story so far
First, let's take a closer look at the retailer's recent story and plans to return to growth. As mentioned, the company offered customers what they most wanted during the first phases of the pandemic, and that was contactless shopping. They could order online and drive to their local Target for pickup or have an order shipped to them. As a result, digital sales soared. And Target's business model of fulfilling orders through its stores offered the company efficiency and speed.
Over the past few years, though, contactless shopping has been less of a priority for the consumer -- so strengths here offered Target less of an advantage than they did earlier. On top of that, higher inflation pushed shoppers to focus on food and essentials, which are lower-margin for Target than discretionary items. The challenges multiplied: Consumers complained of long lines at checkout and fewer of their favorite items on the shelves. And theft in stores further hurt the company's earnings.
The good news is Target's annual revenue has remained around those peak levels attained in recent years, but the bad news is it hasn't grown further. And the stock price has tumbled, losing about 40% in five years.
NYSE: TGT
Key Data Points
Target understands the problems and, over the past several months, has taken steps to renew growth. Earlier this year, the company formed an enterprise acceleration office to speed up decisions and processes, it recently cut 1,800 corporate jobs, and chief operating officer Michael Fiddelke is set to take on the role of chief executive officer early next year.
Target's plans for growth
Some of Target's plans to reignite growth include: decreasing in-store fulfillment in high-traffic stores to put more employees on the floor to help customers; using AI tools to predict trends and bring the product assortment guests want onto the shelves faster; and spending on store remodels and new stores, as these locations are known to drive growth.
It's also important to note that Target has a key asset that should favor growth over the long term, and that's its portfolio of billion-dollar owned brands -- from the Cat & Jack children's clothing line to All in Motion activewear. The portfolio includes more than 40 private labels, and what's key about these brands is that they are higher-margin for Target than national brands.
Considering all of this, where will Target stock be in three years? It's impossible to predict with 100% certainty whether Target's plan will be successful, but it's fair to say the company may be taking steps in the right direction. It's identified the problems and is taking action to address them. The company also aims to spend on growth, with plans to invest $5 billion next year, up by $1 billion from this year's level, in improving its stores.
If all goes according to plan, we should expect some results over the coming three years -- we might see a return to growth and a pop in the stock price. All of this means that Target is a stock to watch and potentially add to your portfolio if you're looking for an exciting recovery story.
