Target's defensive strategy is on the mark

Posted Apr 14th 2008 5:45PM by Joseph Lazzaro
Filed under: Target Corp. (TGT), Stocks to Buy

With the U.S. economy growing at an anemic rate (if it isn't already in a recession), investors should, in general, avoid the retail sector.

Still, there are those isolated companies, which, via either niche or operational execution, qualify as an exception, and with the above in mind Target is worth a review.

Target Corporation (NYSE: TGT) should post adequate FY 2009 same store sales growth, aided by refinements to its electronics, apparel, and home furnishings offerings, with a continued focus on value.

Further, 1600-store Target has handled the sector's competition well: it remains competitively-priced for comparable items with Wal-Mart Stores, Inc. (NYSE: WMT), offers an easier-access/more pleasant shopping environment than the latter, and has exhibited modest, selected pricing power, despite the U.S. economic downturn. That last point on pricing power should help TGT pass on cost increases to consumers.

In addition, Target's marketing campaigns seem to be registering better with upper-middle-income shoppers, who appear to be increasingly seeking better values. The Reuters FY 2009/FY 2010 EPS consensus estimates for TGT are $3.56 to $4.06.

The risks? Analysts are keeping an eye on Target's new store opening timetable. Additional increases in the price of oil/gasoline will further lower U.S. consumers' disposable income, and hurt TGT's results.

The First Call mean rating for TGT is: Hold. [19 firms]. Mean 2008 price target for TGT: $61 [high: $79, low: $48].

Stock Analysis: Target is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than 2 years should be rewarded from TGT's shares. Sell/Stop Loss if you were to purchase shares in this company: $38.

Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.

Tags: consumer spending, retail sector, same store sales, Target, TGT

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Reader Comments (Page 1 of 1)

4-15-2008 @ 1:16AM

B. Harrison said...

Well, I'm still trying to figure out where the economy is going to "bounce back" as our beloved leader Bush has been claiming.

I have yet to see a sect that is ready to "take off" . . . . . perhaps things ouwl have been better if Bush's plan for th average Americans to invest part of their SS - Social Security into the stock market . . . yeah, right.

4-18-2008 @ 5:20PM

rowdy said...

I have a feeling TGT will falter again in 09. I will file this until then and will admit it if I'm wrong. Promise.
RoudMan

4-21-2008 @ 10:21AM

rowdy said...

Hey JL,
Target"s new Sunday ad shows a 32" Sony LCD tv for $697. It appears as if new with no disclaimers at bottom of page. It is in fact refurbished and the stores may have only 1 and it will be a display model.This is what my local store told me on the phone. He agreed the ad was very misleading but that this was not the first time Target had done this.This makes me think my last comment to you is even more true. I don't know where Wal-Mart has ever advertised (falsely) in this lying manner. I thought that since Target had started courting the over $50K customer(HA!) that they would have more integrity. POINTS TO PONDER.
Roudman

4-21-2008 @ 10:46AM

rowdy said...

Hey JL,
Its me again and I stand corrected on the Sunday Target ad about the $697 Sony32"lcd tv. With the wording, probably drawn up by an attonery,it implies refurbished. This will get the customer to the store if they don't call first like I did. I still think its a bit MISLEADING.
RoudMan