Target Corporation Pulling Back Ahead Of More Upside?
Target Corporation (NYSE: TGT) stock has been trudging its way through months of congestion trying to decide which direction it will break.
Are traders and investors finally getting a resolution to this consolidation pattern?
Target shareholders have been forced to display extraordinary patience over the course of the last two years, with the stock actually posting a negative return over the last 24 months. However, the current chart pattern suggests that after one more pullback, the bulls could see some nice upside action.
What The Bulls Are Seeing…
The bulls in the Target space love the fact that the stock remains one of the few issues in the market that has not participated in the upside action of the broader market for quite a while now. That, they say, is an ideal “catch up” trade candidate –- where a stock will outperform the indices drastically for a short period of time just so it can play “catch up” with the market.
Outside of that, the technical pattern suggests a breakout is getting ready to occur. This breakout, in the bulls' eyes, will be to the upside once the very short-term downside correction terminates down at around $59.58.
Fundamentally, those bullish of Target's stock note that the company sports cheap valuation metrics with its price-to-book of 2.36, a price-to-sales of 0.53, its enterprise value (which trumps its market capitalization) and an earnings growth estimate for next year that eclipses its P/E of 15 (based on 2015 estimates).
Finally, the bulls love Target's 3.4 percent dividend yield.
What The Bears Are Seeing…
The bears, on the other hand, note the very conspicuous technical underperformance of the stock over the last several years. That underperformance, they say, is indicative of the truly dysfunctional nature of Target's operations.
Going further, the company's fundamentals are, in the bears' opinion, “on the brink.” Profit margins are razor thin and Target sports debt ratios that are relatively high while still being technically acceptable.
Target appears to be a company that could benefit from a general rise in the retail sector of the stock market. Perhaps after a bit more of a sell-off (as noted above, Target's downside target for the current weakness is $59.58), retail stocks and Target in particular may take off to the upside (with targets north of $65 according to technicians).
Any close below that level, though, would put the bears back in charge and could lead to a breakdown out of the current pennant formation.
Disclosure: At the time of this writing, Tim Thielen had no position in the equities mentioned in this report.
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