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Target (NYSE: TGT) operates as a general merchandise retailer in the United States and is often considered the Mecca of a shopping destination for millennial moms. With 1,931 stores in the United States and many new store openings in the pipeline, Target is truly a one-stop-shop with its wide range of apparel, accessories, home décor, electronics, toys, seasonal offerings, beauty, housewares essentials and food assortments, including perishables, dry groceries, dairy and frozen products.

But the diverse selections aren’t the only things that draw shoppers to Target. Shopping at Target is more about experience than products. Over the years, Target has found ways to welcome and reward shoppers who spend their time there, i.e. the Target Circle loyalty program, Starbucks in-store and other amenities.

Here’s the million dollar question: Will Target buy ahead of earnings next week? I believe him. Here are my reasonings:

Incessant traffic, both online and in stores

The pandemic has significantly changed buyer behavior. More and more people are buying online; 40% of American adults online find it more enjoyable than shopping in-store.

At the target, in-person foot traffic grew by double digits in January (10.7%) and February (10.5%), and by nearly 7% in March (6.9%), which is all the more remarkable given that the segment more broad has seen visits plummet due to rising petrol prices.

In March 2022, Target.com received 192.2 million visits with an average session length of 9 minutes. Compared to Costco (COST), Costco.com only received 85.7 million visits with an average session length of 7 minutes.

Compared to Walmart (WMT), the world’s largest retailer, Target barely holds a candle to Walmart’s revenue, number of stores and top deals. But for what Target lacks in metrics, it makes up for in shopping experiences. In an age where shoppers have options, Target offers premium products with cutting-edge designs that can attract and retain customers and come back for more.

Despite headwinds, maintains margins

Supply chain issues have become a growing concern over the past year, not just for Target, but for the entire retail landscape. However, Target has been able to use its size and scale to increase sales, and I think it’s in a great position to navigate the supply chain turbulence.

Objective in the fourth quarter:

Net sales

$31 billion

Additional sales:

+8.9%

Operating result

$2.1 billion

Operating margin

6.8%

Inventory growth:

+30.5%

Source: Target Investor Documents

In the end, it’s all about margins. With a 6% margin, Target’s profit margin is in line with the rest of the industry.

Great entry point

Target’s return on assets of 12.9% is among the best returns in the industry. It outperformed 84% of its industry peers. The industry average return on assets is 7.98%. The same can be said of Target’s return on equity of 54.2%, compared to the industry average of 30.6%.

The stock trades at a price-earnings ratio of 15.2, making it a cheaper alternative to Walmart (30.3) and Costco (39.4).

Investors should also view this stock as a reliable dividend payer in a recession-proof sector. Target pays out 22.3% of its earnings as dividends and has done so for at least 10 years, which is a solid track record.

TGT Target Annual Revenue Free Cash Flow Dividend

Annual Income/FCF/Dividend (Finviz.com)

On the technical side, an inverted head and shoulders pattern is forming on the weekly chart; a bullish setup suggesting an upward reversal could be imminent. There is strong support at the $210-215 level. Perhaps in the short term the stock can see more downside, but there is strong support at around $205.

Target weekly chart technical analysis

Target weekly chart (Finviz.com)

Target announces its first quarter earnings on May 18.

Conclusion

The target stock has been hammered recently, down 16% from recent highs. Wall Street analysts expect year-over-year earnings decline on higher revenue for the quarter that ended April 2022. I think Target could hold onto its nice streak of earnings estimate surprises despite this sentiment bearish. Fundamental and technical analysis of the stock suggests that current levels could be an excellent entry to buy Target.