On Jun 19, we downgraded our long-term recommendation on
) to Underperform based on the company's dismal first-quarter
fiscal 2013 performance. The stock currently carries a Zacks Rank
Why the Downgrade?
Estimates of this operator of general merchandise and food
discount stores in the United States have shown a downtrend since
the company reported disappointing first-quarter results on May
22, 2013 that prompted management to take a conservative stance
on its future earnings.
The quarterly earnings, including U.S. and Canadian
operations, came in at 81 cents a share that dipped from $1.03
reported in the prior-year quarter. Target's adjusted earnings of
$1.05 per share also fell from $1.11 delivered in the year-ago
quarter. This relates to results from U.S. operations only.
However, it managed to exceed the Zacks Consensus Estimate of 85
Nevertheless, the bottom-line results came below Target's
earlier projection of $1.10 to $1.20 per share due to
lower-than-anticipated sales witnessed principally in apparel and
other seasonal and weather-related categories. Total revenue
edged down 1% to $16,706 million from the prior-year quarter, and
also came below the Zacks Consensus Estimate of $16,897
Following soft first-quarter results, Target now projects
fiscal 2013 earnings between $4.70 and $4.90 per share down from
a range of $4.85 to $5.05 forecasted earlier.
Consequently, we are witnessing a fall in the Zacks Consensus
Estimate. The Zacks Consensus Estimate for the second and third
quarters of fiscal 2013 dropped 7.7% and 3.3%, to 96 cents and 88
cents a share, respectively, over the past 60 days. Moreover, the
Zacks Consensus Estimate for fiscal 2013 fell by 3.8% to $4.32
and for 2014 it tumbled 1.6% to $5.46 per share, over the same
Cause for Concern
We expect the footfall to be challenging given the near-term
headwinds such as higher payroll taxes, sluggish economic
recovery and e-Commerce competition. The company also lowered its
comparable-store sales guidance to 2%-2.5% from 2.7%. We believe
that the macro-economic condition is still not favorable and
consumers will tread cautiously against discretionary items.
Another factor that limits the company's upside potential is the
greater concentration of Target's revenue generating capability
in a few regions of the United States, thereby posing a
Other Stocks That Warrant a Look
Not all stocks in the retail sector are performing as
disappointingly as Target. Other stocks worth considering include
Flowers Foods, Inc.
B&G Foods Inc.
Omega Protein Corp.
) , all of which hold a Zacks Rank #1 (Strong Buy), and are
expected to continue with their upbeat performance.
B&G FOODS CL-A (BGS): Free Stock Analysis
FLOWERS FOODS (FLO): Free Stock Analysis
OMEGA PROTEIN (OME): Free Stock Analysis
TARGET CORP (TGT): Free Stock Analysis Report
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