Where Will Target Go Next?

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With shares of Target (NYSE:TGT) trading around $60, is TGT an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework.

T = Trends for a Stock’s Movement

Target operates general stores in the United States as well as online, where it sells merchandise at discounted prices. It operates in three segments: U.S. Retail, U.S. Credit Card, and Canadian. Target’s online presence is designed to enable consumers to purchase products either online or by locating items in one of its stores with the aid of online research and location tools. Groceries, clothing, household items, and general merchandise can be found at Target, making it an efficient shopping experience for consumers throughout the nation.

Target wants to be a bigger part of city living by experimenting with going smaller. The discount retailer, which has long focused on large stores in suburban markets, completed a lease last week on its smallest store yet, a 20,000-square-foot location in Minneapolis that is a test store for a new format called TargetExpress. The store will be about a fifth the size of Target’s smallest format stores to date and would allow the company to open more locations in dense urban markets like New York, where 100,000 square feet is hard to come by.

John D. Griffith, executive vice president of property development at Target, said that as more people — especially young people — opt to live in cities rather than suburbs, Target wants to remain convenient. “Many of them grew up with a Target experience,” Griffith said. “Now, they show up at their cool little bungalow they’re redoing, they’re five miles from downtown, and yet, Target is a little bit of an effort to get to.” Minneapolis, where Target is based, is seeing just this sort of influx, he said.

T = Technicals on the Stock Chart Are Weak

Target stock has been trading sideways over the last couple of quarters. The stock is seeing lower lows as it continues to pull back. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Target is trading below its rising key averages, which signals neutral to bearish price action in the near-term.

TGT

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Target options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Target options

19.6%

50%

48%

What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

February Options

Steep

Average

March Options

Steep

Average

As of Friday, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

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