Target Hits the Bulls Eye

Discount retailer Target (NYSE:TGT) has been on a roll, and its most recent quarterly numbers continue that trend.

Third-quarter profit at Target increased 16% to $506 million, or $0.59 per share. Revenues increased 11% to $13.57 billion, with contributions from new store openings, same-store sales growth, and the company's credit card business. Target exceeded analysts' expectations on both the top and bottom lines.

Target's same-store sales increased 4.6%, compared to a 5.9% increase last year this time. However, the comps increase was flat compared to last quarter. Its credit card business contributed $414 million to its total sales. Target's earnings before interest expense and income taxes increased 15% to $957 million.

This has been a great year for Target; it has been doing quite well despite rivalry from other discounters such as Wal-Mart (NYSE:WMT), Sears Holdings (NASDAQ:SHLD), and the like. (And of course, it's arguable that Target doesn't have an entirely direct rivalry with those companies, since it does tend to attract a more affluent demographic looking for cheap but chic merchandise.)

While Target shares are down 1.2% for the year, over the last three months optimism has been high, with a 20% appreciation in the company's share price. And few investors could have missed that Warren Buffett's Berkshire Hathaway (NYSE:BRK-A) recently bought a stake in the retailer. Target has also been buying back shares, repurchasing $59 million worth during the third quarter.

Target spoke optimistically about the holiday quarter, even in the face of Wal-Mart's recent aggressive price cuts. Target's certainly one of the companies in Wal-Mart's sights, but then again, I suspect that many Target customers aren't too fond of Wal-Mart. At any rate, Target said that it intends to follow the situation closely and keep prices competitive for the season.

I'm a big fan of Target. I think it differentiates itself well from competitors with its in-store atmosphere and product line, and has a customer base that is much more resilient to economic ups and downs than the demographics drawn to many of its major rivals. (I'm also sure it pilfers its fair share of business from more upscale retailers.) With approximately 1,500 stores, Target's also still got plenty of opportunity for expansion.

While investors may have gotten a bit slap-happy about Target shares over the last couple of months, there are logical reasons to feel optimistic about the retailer's future prospects.

For related Foolish content, see the following stories:

• Wal-Mart's been cutting prices aggressively for the holidays.
• Check out last quarter at Target.
• And here's some analysis of an earlier quarter this year.

Wal-Mart and Berkshire Hathaway are Motley Fool Inside Value recommendations. To find out what other companies Philip Durell has recommended as bargains, click here for a 30-day free trial.

Alyce Lomax does not own shares of any of the companies mentioned.