Initiating Target as Neutral - Analyst Blog

We have recently initiated coverage on Target Corporation (TGT) with a Neutral recommendation and a target price of $53.00, as we anticipate it to perform in line with the industry.

Target’s strategic initiatives should help 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 will boost sales and earnings in a sluggish retail environment. Target now tends to focus more on store renovations and enhancing store sales productivity, introducing smaller format stores, and eyeing opportunities to open stores in the international markets beyond a period of 3 to 5 years.

The company is actively managing its cash flows. Target has been consistently enhancing shareholders return by increasing dividends. The company also recently announced the resumption of the $10 billion share repurchase program authorized in November 2007, which was suspended in November 2008 when the economy faltered.

Although a well managed company, we remain concerned about lower demand for higher margin discretionary merchandise and increased competition. The greater concentration of the Target’s stores in certain regions of the United States, poses a competitive threat, compared to Wal-Mart Stores Inc. (WMT), which is geographically diversified.

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