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Analyst Blog

On Oct 18, we downgraded our long-term recommendation on Target Corporation (TGT - Analyst Report) to Underperform based on the company’s disappointing second-quarter fiscal 2013 performance coupled with the tough economic scenario and a cautious consumer spending environment. The stock currently carries a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Estimates for Target have shown a downtrend since the company reported dismal second-quarter results on Aug 21, 2013. The quarterly earnings including U.S. and Canadian operations came in at 95 cents a share that dipped 10.4% from $1.06 reported in the prior-year quarter. Total revenue increased 2% to $17,117 million but fell short of the Zacks Consensus Estimate of $17,357 million.

Management now anticipates fiscal-2013 earnings to come in at the lower end of the earlier provided guidance range of $4.70 to $4.90 per share due to household budgetary constraints. The macroeconomic condition is still not stable and consumers will tread cautiously with regard to the purchase of discretionary items.

We expect footfall to be challenging given the near-term headwinds such as higher payroll taxes, sluggish economic recovery and e-Commerce competition. Consequently, management now projects comparable-store sales growth for the full year to be 1%, down from a range of 2% to 2.5% forecasted earlier.

Consequently, we are witnessing a fall in the Zacks Consensus Estimate, as analysts become less constructive on the stock’s future performance. The Zacks Consensus Estimate for fiscal 2013 fell by 10% to $3.88 and for fiscal 2014 it tumbled by 7.9% to $5.00 per share, over the past 60 days.

Other Stocks that Warrant a Look

Other stocks worth considering in the retail sector include Ross Stores Inc. (ROST - Analyst Report), Dollar General Corp. (DG - Analyst Report) and The TJX Companies, Inc. (TJX - Analyst Report) all sporting a Zacks Rank #2 (Buy).

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