On Jul 4, 2014, we issued an updated research report on
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
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
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
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.
The Kroger Co.
Burlington Stores, Inc.
). Citi Trends sports a Zacks Rank #1 (Strong Buy) whereas Kroger
and Burlington carry a Zacks Rank #2 (Buy).
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