The Real Deal on Wall Street: Target Deserves No More Free Passes

A Poem From an Analyst to Target:
 

How I love your bright red bull’s-eye hanging outside your store
It just makes me want to rush through the door
To shop the fruit and veggie sections I see
And then go sit under a tree
Oh Target, oh Target, you are so cheap chic
And that’s why I let my personal experiences filter into my spreadsheet

Raise your hands and feet if a broker has slipped you this sales line: “Target TGT is expanding into groceries and gaining a greater share of wallets - and with its cheap chic apparel offerings always in demand, we are going to need you to own this stock (or more of it).”

If this does not sound familiar because you use services like TD Ameritrade to remove the human element, simply pull up a research report and you will likely find an Overweight rating on the stock and praise being heaped upon the brand.

Enough is enough with the warm and fuzzy feelings on Target. Here is the real deal: Target’s stock has been rudderless since April 2010 (underperforming Wal-Mart WMT - go figure!).

Moreover, I don’t think the current CEO who took the helm in February 2009 deserves a pat on the back for raising Target shares from the depths of that period. Remember, the broader market bottomed out in March 2009, and the severely oversold territory remaining was a massive tide that lifted all ships.

The fact is that the present management team has taken on too many projects - a major Canadian store push, a plan to outfit domestic stores with organic meats, and the development of a new website experience (which was unveiled before it was ready) - while at the same time underestimating the negative impacts the countless initiatives and a sales mix shift has had on margins. If Target continues its newly developed blundering ways in 2012, one should not rule out changes in the executive suite or, quite possibly, the return of an Ackman-type activist investor.

By the way, these thoughts are clearly reflected in Target’s valuation, which is at a sufficient discount to its peers in spite of management announcing a new $5 billion share repurchase plan and robust long-term dividend plan. That is what happens after years of failing to sit up and take notice.