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On Jan 29, 2014 we downgraded our recommendation on Target Corp. (TGT - Analyst Report), the operator of general merchandise and food discount stores, to Underperform following the massive security breach and subsequent trimming of the earnings guidance.

Why the Downgrade?

Estimates for Target have been declining ever since the company publicly acknowledged the security breach on Dec 19. The breach took place during the holiday season, from a day before Thanksgiving up to Dec 15.

Following the massive breach and tempered outlook, the Zacks Consensus Estimate for fiscal 2013 has gone down 11.9% to $3.17 per share over the last 60 days. The Zacks Consensus Estimate for fiscal 2014 has also decreased 6.0% to $4.41 per share over the same time frame. With the Zacks Consensus Estimate for both fiscal 2013 and 2014 moving south, the company now has a Zacks #5 Rank (Strong Sell).

Causes of Concern

Target faced its worst security breach when information related to credit and debit card data of approximately 70 million customers were hacked. As a part of the ongoing inquiry, Target disclosed that the data theft included names, mailing and email addresses as well as phone numbers.

Target lowered its fourth-quarter 2013 guidance owing to the massive security breach. It now expects adjusted earnings per share for its U.S. segment in the range of $1.20 to $1.30, compared with the previous projection of $1.50 to $1.60. Further, comparable store sales are expected to decline 2.5% in the fourth quarter as against flat comps forecasted earlier.

Moreover, Target, as per media reports, has been slapped with several lawsuits in the past few days over the security breach, thereby increasing its legal woes. It seems that there could be more trouble for the retailer, going forward.  

Other Stocks to Consider


While we prefer to avoid Target until we see signs of improvement in the company's performance, other retail stocks worth a look include Conns Inc. (CONN - Snapshot Report), Christopher & Banks Corp. (CBK - Snapshot Report) and Michael Kors Holdings Ltd. (KORS - Analyst Report). While Conns and Christopher & Banks carry a Zacks Rank #1(Strong Buy), Michael Kors has a Zacks Rank #2 (Buy).

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