The U.S. economy is still grappling with an uneven recovery,
and companies are striving to shield themselves from the
) is persistently trying to keep itself afloat in this sluggish
economic environment. The company's P-fresh remodel program, 5%
REDcard Rewards program, CityTarget stores and its foray into the
foreign market are essential for safeguarding itself from any
Target's efficient marketing, multi-channel strategy, product
innovation, compelling pricing strategy, and new merchandise
assortments, should drive comparable-store sales and operating
margins in the long term. We expect the company to gain market
share, and believe that increased focus on consumable items
should boost sales and earnings in a soft consumer environment.
The company's long-term objective is to attain earnings per share
of $7.20 or more in the U.S. by 2017. Target now projects
fourth-quarter 2012 earnings between $1.45 and $1.55 for the
The company is now focusing more on store renovations and
improving store sales productivity. Target plans to sustain its
remodeling program at existing general merchandise locations,
which include an expanded grocery offering, improved store layout
and enhancement of in-store shopping experience across
departments, such as apparel, home, beauty, shoes and baby.
In order to tap the urban markets where real estate remains a
constraint, Target plans to introduce smaller-format stores
called CityTarget, similar to its biggest rival,
Wal-Mart Stores Inc.
). Target is now operating 5 CityTarget stores in Los Angeles,
Seattle, Chicago and San Francisco, and plans to open 3 more
outlets in 2013.
The greater concentration of the company's revenue generating
capabilities in limited regions of the United States, pose a
competitive threat to Target, compared with Wal-Mart and
Costco Wholesale Corporation
), which are geographically diversified and more resourceful.
Moreover, Target's success rides on the stability of these
Consequently, Target is eyeing store openings in international
markets, such as Canada and Latin America. We believe, the
opening of stores outside the United States will definitely boost
the company's top and bottom lines and improve cash flow
The economy is still not out of the woods. It is evident that
the company's customers remain sensitive to macroeconomic factors
including interest rate hikes, increase in fuel and energy costs,
credit availability, unemployment levels, and high household debt
levels, which may affect their discretionary spending, and in
turn curtail the company's growth and profitability.
The above analysis supports our unbiased view on the stock,
and therefore, we advocate our long-term "Neutral" recommendation
on the stock. Moreover, Target retains a Zacks #3 Rank that
translates into a short-term "Hold" rating.
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