TGT – A Great Company with A Temporary Problem

Right now I think Target shows great value for put sellers. Here’s why:

– The company currently yields nearly 3%. Even in the depths of 2008 and 2009 the maximum yield that was ever reached was a little over 2%. This is being achieved on a payout ratio of only 40%.

– The company has been increasing its dividend every year for far longer than I have been alive. That’s a long time.

– Insurance policies will cover much of the cost of the lawsuits related to the data breach. Lawsuits should soften the blow by around $150 million, with the total cost coming to around $250 million (assuming the breach is similar to the 2007 TJ Maxx breach).

– The company is currently trading on an EV/EBITDA of 7.2. On a P/E basis the company is cheaper than TJX, Costco, and Ross stores.

Yes, I get that they are having difficulty in Canada, that it’s facing stiff online competition, and that recent earnings and forecasts have been disappointing, but the value proposition of being assigned the stock at $50 to $55 is compelling. With the current volatility you’re able to pick up some tasty premium too. Here’s a mix of buy/sell articles.

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