Goldman Meets With Target (TGT) Management; Gives $59.00 Price Target; Maintains Neutral

Target's (NYSE: TGT) executive management team met with Goldman Sachs analysts this past week at Target headquarters.

Members of the executive management team, including CEO Gregg Steinhafel and CFO Doug Scovanner met with Goldman Analysts Adrianne Shapira, Morry Brown, CFA and Scott Kaufman-Ross. At the meeting the analysts noted two distinct "horizons. (1) Near term, despite disappointing 2Q sales, EPS remain on track due to a strong gross margin, well controlled expenses, and favorable credit trends. Management sees the environment as slow but stable with much of the softness related to CE weakness; however, it is curtailing markdown on sensitive merchandise. (2) Longer-term, there was clear enthusiasm about the ongoing P-Fresh remodel efforts and the mid-October launch of the 5% rewards program to propel comps by gaining greater share of customers’ wallets."

The implications are that the over-arching strategy behind the company’s two primary initiatives is to drive customer loyalty and increase sales productivity within existing stores while holding EBITDA margins constant. "With new store growth limited across retail, given development constraints and lower expected returns versus 2007 peaks, we believe this “sweating the assets” approach is both prudent and potentially quite profitable. We are warming up to the Target story, given its unique top-line drivers at are not dependent on a macro recovery."

As such, it maintains a Neutral rating, "given near-term sales challenges, particularly as the softness within the electronics category (a key culprit in 2Q’s sequential deceleration) is unlikely to abate before fall."

Its $59.00, 12-month price target is based on the company trading at 14X their 2011 EPS estimate.

The key risks include SSS volatility, exposure to commodity fluctuations and changes in the pace of credit card delinquencies. The shares closed Friday, July 16th at $50.28 -.51.

Target was founded in 1902 operates general merchandise and food discount stores in the United States.