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Target Tanks After Earnings: Should You Buy the Dip?

Investors haven’t been impressed with the recent results of Target (NYSE:TGT). Unlike its rival Walmart (NYSE:WMT) which is still posting strong numbers, the Minnesota-based retailer is showing signs that its operations are more vulnerable and susceptible to slowing economic conditions. Walmart is more of a go-to option for groceries and necessities while Target is more dependent on discretionary spending, and that is showing in its financial results.

In Target’s first-quarter results, it reported a 3.7% decline in comparable sales. And its digital comparable sales growth was only up 1.4%. It is, however, encouraging to see that the company’s inventory was 7% lower than a year ago. In the past, the company was trying to shed excess inventory, which can have a negative impact on margins.

Investors shouldn’t expect a big turnaround in the business as Target only expects comparable sales growth between 0% and 2% for the second quarter.

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Shares of Target fell following the earnings release and year to date, the stock is up just 2% right now. It is trading at a modest 16 times earnings but with more of an economic slowdown potentially still ahead for Target, things may get worse before they get better for the stock – investors shouldn’t assume that it has bottomed out.

Investors willing to wait it out may want to consider buying the stock as it does provide an above-average yield of 3%. And the company has also increased its dividend for 52 consecutive years, making it an attractive option in the long run.