Understanding Barclays Bearish Call On Target

Barclays remains Underweight on Target Corporation TGT saying the company lacks a natural traffic driver in grocery, putting it at a disadvantage versus peers.

"In our view Target sits within the "Attempting to Reinvent" category, given its flattish unit growth, deteriorating traffic trends, negative comps, and lack of sustainable competitive advantages," analyst Matthew McClintock wrote in a note.

McClintock noted that Target doesn't appear to be a destination for grocery, in particular after management hinted that it doesn't view the company becoming a full-service grocer over long-term.

"We believe this positioning is a disadvantage vs. retailers whose full-service offering provides a natural reason for consumers to frequent the store," the analyst continued.

On the competitive front, Wal-Mart Stores, Inc. WMT's aggressive price investments are hurting Target's traffic.

Target is betting on signature categories, improved food/fresh mix, localization, flex formats and loyalty program to spur sales and traffic. McClintock is skeptical whether these bets would help Target achieving its 3 percent long-term comp growth target, especially amid falling traffic trends, unimpressive digital growth, and slowing capex spend.

"[W]e find 2Q16's 16% digital growth off of a small base unimpressive, and we believe that slowing capex spend is not a positive indication of the potential return of the initiatives outlined above," the analyst added.

McClintock has a price target of $60 on Target shares.