Retail Analyst Says Target Isn't Out Of The Woods Just Yet

Target Corporation TGT's better-than-expected earnings report was more than good enough to boost the stock higher on Wednesday but fell short of winning over some Wall Street analysts.

Speaking as a guest on CNBC's "Squawk Box" segment Wednesday morning, UBS's retail analyst Michael Lasser explained why the positive aspects of the report are overshadowed by the negative ones.

According to Lasser, Target "walloped" what the market was looking for on the bottom line based on a reported earnings per share that was 30-percent better than expected. At the same time, other metrics including revenue, gross margins, same-store sales and expenses all came in better than feared.

But, store traffic was still down in the quarter, and the company has a long way to go in investments.

"They aren't out of the woods yet, and the road to improvement is going to be long," Lasser said.

What Needs To Be Done?

Lasser may become incrementally bullish on the stock if Target starts investing in price, something that is "table stakes for everyone in retail."

The analyst continued that Target may need to lower prices and use its PnL to fund these price investments to become a player in the major price wars taking place across the entire consumable retail category.

Lasser did acknowledge that Target's stock is "inexpensive" at around $55 per share and boasts an impressive dividend yield of more than 4.5 percent. He added that the downside to Target's stock is "pretty limited," but in order for investors to realize a major return, the company needs to show a sustained improvement in both sales and margins over time.

"Our argument is given what's happening in retail it's going to be hard to see that — at least in the near term," the analyst concluded. "It's really a balanced risk-reward here."

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