Not On Target

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I’ve been spending a lot of time on Target $TGT ( ▲ 0.91% ) and wanted to do a writeup on the name. I am a holder of the equity, so this comes with the obvious disclosures that I’ve included at the bottom of the piece.

I am an avid Target shopper, which is why I struggle with the fact that the business is struggling. Every store I go to, in the city or outside, is always packed and has what I need. In some ways I’m following the “invest in what you love” strategy, but I also am fully aware I risk being blinded by “love” and anec-data.

After re-underwriting the name, I came to the conclusion that Target, while ridiculously cheap, isn’t going to see multiple expansion quite yet because it is bearing the brunt of the “K-Shaped economy” and the “turnaround story” nature of the thesis is still too early in nature. Still, this is a large retailer with massive scale, recurring brand loyalty, and was quite the retail success story before 2022. So it’s hard to not at least want to sharpen the pencil on this one despite it maybe being too early to get involved in size.

For turnaround stories, I generally want to see the early innings of a turnaround working (if you come in at the mid-innings then you’re too late) and it feels like we’re another 3-6 months away from seeing if there’s early traction.

So I’m going to lay out the following Upside and Downside cases:

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