Target Corporation TGT should gain momentum in its same-day pickup services and this bodes well for the stock, according to a survey conducted by research firm Stifel.
The Target Analyst: Mark Astrachan upgraded Target's stock from Hold to Buy with a price target lifted from $200 to $225.
The Target Thesis: Stifel's proprietary spending survey was "most positive for Target" as around 40% of shoppers are more likely to take advantage of same-day online buying services, Astrachan wrote in a note. The results suggest Target's digital momentum can continue after it was a key driver of comp growth in 2020.
Same-day digital orders rose from 30% of all transactions in 2019 to 42% in 2020, the analyst wrote. These types of transactions tend to have a higher recurrence and usage rate versus other forms of shopping given their convenience. On Target's end, these transactions are up to 90% cheaper to fulfill versus traditional ship-to-home orders.
"We view the relative tendency of Target shoppers to be users of same-day fulfillment services positively for the retailer as indicative both of Target's success in encouraging adoption of same-day services among existing customers and of the strength of the retailer's omni-channel value proposition to potential customers," the analyst wrote.
The research firm's revised $225 price target represents a multiple of 12 times 2022E EBITDA. This represents a discount to other retail winners and the gap is "unwarranted given expectations for ongoing share gains."
TGT Price Action: Shares of Target were trading higher by 2.9% at $194.44.
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