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Why Target Looks Ready to Reward Long-Term Shareholders

NEW YORK (TheStreet) – Wall Street hates uncertainty.

Although retail giant Target (TGT - Get Report) has yet to fully emerge from its data breach that impacted 70 million customers, one thing is certain, the company has seen the worst. Aside from having landed a new CEO in Brian Cornell, even more important for investors, the stock has bottomed.

Shares, at $58.55, are down 7.5% on the year to date.

Discount retailers haven't faired that much better. The entire sector has managed a decline of 1.19%, including Wal-Mart (WMT) , which has shed more than 4% in 2014. So on a relative basis, Target, which is has been a target for the bears, has done OK. The company now seems poised to get back on track.

With shares trading at a price-to-earnings ratio of 19, Target seems fairly valued. This is because when looking at Target's metrics such as revenue growth and price-to-book ratio, the company is priced in accordance with the industry average.

That said, based on 2015 estimates of $4.11 per share, Target's P/E drops to 14, or five points below the average P/E of 19. On a forward-looking basis, this is still one full point below the industry average.

In others words, Wall Street expects Target to be average (to slightly down) in the next 12 months. From my vantage point, this makes Target a great way to play both the re-acceleration of U.S. economic growth and the company's own turnaround potential. That, coupled with management's plans to fix Canadian operations can be significant earnings drivers for Target in 2015.

So at around $58 per share, which is still more than 15% below Target's 52-week high, I would be a buyer here. The stock is trading at just 0.5 times revenue. The industry average is 0.8. Unless there are more weather-related impacts to worry about, Wall Street will have no choice but to correct this mistake. This means that Target can still offer meaningful value just by meeting expectations.

To that end, if the company can surprise with an earnings beat (or two) in the next six quarters, these shares can reach $65 to $70 in the next 12 to 18 months. The company is implementing changes that should improve revenue growth and earnings in the coming years, including installing Mark Schindele to run Canadian operations.

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