Target's same-store sales miss offers buying opportunity

Shares in Target (TGT) fell nearly 3% Thursday after the nation's second biggest discount retailer said same-store sales -- a key retail metric -- missed Wall Street's average estimate. But Target's short-term pain could be a patient investor's long-term gain -- if the stock is indeed as cheap as it appears.

True, November same-store sales, which measures sales at stores open more than a year, fell 1.5% when the Street was looking for a 0.5% decline. But Brian Sozzi, an analyst with Wall Street Strategies, says there's no Grinch to be found in Target's numbers. Not only did the retailer increase traffic, Sozzi said in a note to clients, but also gained traction in discretionary (or non-essential) merchandise categories. (That's an encouraging sign.) Sozzi also believes the company's lean inventory position and leverage over its suppliers could insulate fourth-quarter earnings from the same-store sales shortfall.
Most intriguing, however, is the relative valuation. Target's stock goes for 13 times forward earnings. That offers discounts of more than 25% to the S&P 500 ($INX) and 20% to its own five-year average, according to Thomson Reuters. Even more compelling is the price-earnings-to-growth (PEG) ratio, which measures how fast a stock is rising relative to its growth prospects. By that metric the stock offers nearly a 50% discount to the broader market and a 10% discount to its own five-year average.

Meanwhile, analysts' average price target stands at $58, according to Thomson Reuters. Throw in the 1.5% dividend yield and you get an implied upside of 25% in the next 12 months or so. Target's low prices have been luring in cash-strapped consumers, but it's the stock that really looks to be on sale.

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