Target Still Grappling with Card Breach - Analyst Blog


On Jul 4, 2014, we issued an updated research report on Target Corp. ( TGT ).

Target has been grappling with the massive data breach that has hurt the company's results. Adjusted quarterly earnings of 70 cents a share came in line with the Zacks Consensus Estimate but fell 13.9% year over year.

Apart from the security breach, Target's tepid foray into the Canadian market, weak e-commerce sales and subsequent dismal quarterly performances has put the company a step behind. The beleaguered retailer, which announced the departure of CEO Gregg Steinhafel in May, also lowered its full-year earnings projection.

Target now projects adjusted earnings in the range of 85 cents to $1.00 per share for the second quarter and between $3.60 and $3.90 per share for fiscal 2014. Earlier, the company had projected earnings in the band of $3.85 to $4.15 per share.

Further, management expects operating margin to remain under pressure as the company diverts resources to enhance domestic and online sales as well as to improve Canadian operations. Also, comps will see slower improvement and are likely to remain flat or increase marginally.

Moreover, fallout from the breach is likely to keep traffic at bay for some time and may result in potential costs (litigation, compensation, etc.) during the first half of fiscal 2014, putting Target's revenues and margins under pressure. We believe that it will take time for effects of the breach to get completely mitigated.

Given the negativity, analysts have become less constructive on the stock as reflected in the downward estimate revisions for fiscal 2014 and 2015. Over the last 60 days, estimates have gone down 7.7% to $3.71 for fiscal 2014 and 9.7% to $4.29 for fiscal 2015.

However, Target is leaving no stone unturned to reinstate itself on a growth trajectory. The company's $1 billion cost cutting plan and initiatives to enhance domestic and online as well as improve Canadian operations is impressive. However, all these are likely to prove time consuming affair before becoming accretive to Target's profitability.

At present, Target is a Zacks Rank #5 (Strong Sell).

Key Picks from the Sector

Other better-ranked retail stocks worth consideration include Citi Trends, Inc. ( CTRN ), The Kroger Co. ( KR ) and Burlington Stores, Inc. ( BURL ). Citi Trends sports a Zacks Rank #1 (Strong Buy) whereas Kroger and Burlington carry a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: TGT , BURL , KR , CTRN

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