Target Corporation (TGT): Will Red Card and Canadian Expansion Help This Retailer Hit the Bulls-eye?

Costco is going strong this year, with new store openings and increased membership renewal rate. They are targeting 28 new stores this year which is significantly more than the 16 openings in FY 2012. Its membership renewal was 89.9% in the US and 86.4% worldwide in the 1^st half of this fiscal year despite the membership fee increase to $55. Its membership fee income grew 14.7% in this period and is expected to continue as a good source of cash flow.

Source: Google Finance and Yahoo Finance

Target is the best performer among the three above mentioned peers with highest operating margin of 8.43% and lowest forward P/E of 12.82. Walmart has decent operating margin of 5.65% but relatively low forward P/E of 12.98. Costco is the least preferred choice among the three with lowest operating margin of 2.97% and highest forward P/E of 21.76.

Conclusion

Target Corporation (NYSE:TGT) has entered Canada this year and recent results have shown that the entry was successful. Its entry strategy with Red Card penetration has helped it to achieve this success. In the US, its small format City Target stores have helped it to increase sales. Its partnership with Facebook Inc (NASDAQ:FB), Google Inc (NASDAQ:GOOG) and eBay Inc (NASDAQ:EBAY) will help it to increase sales. I believe it is an attractive buy at current valuations.

The article Will Red Card and Canadian Expansion Help This Retailer Hit the Bulls-eye? originally appeared on Fool.com and is written by Ash Sharma.

Ash Sharma has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale (NASDAQ:COST). The Motley Fool owns shares of Costco Wholesale. Ash is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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