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Bear of the Day: Target Corporation (TGT)

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The hits just keep coming for the discount retail industry, largely thanks to a number of weather issues. First, it was the ‘polar vortex’ in January and a number of bad storms across the Northern part of the country, and this was followed up by a summer polar vortex that has kept temperatures very mild and summer pretty much non-existent.

Discount retailers have struggled in this environment as those selling clothes have really missed out on some key shopping seasons, while changing consumer tastes haven’t helped matters either. Instead, it appears as though only luxury companies have been able to weather the storm and keep their stock prices moving higher.

This trend away from discount retail has really been evident in the past few weeks of earnings season. We have seen several key department stores miss earnings, while the behemoth of Wal-Mart (WMT - Free Report) just slashed their guidance as well. Given this, a slightly higher end discount retailer Target (TGT - Free Report) , may be the next to succumb to the trend and could be a company to avoid ahead of its next quarterly earnings update.

Target in Focus

Target has had a rough time beyond general weather issues as it is still reeling from its data breach last year that shook consumers’ confidence in the company and their security systems. This really dragged down TGT shares, and the company is still trying to recover from that debacle.  

Thanks to this issue as well as the general decline in the discount retail outlook, analysts have been busy slashing their estimates for TGT earnings over the past few weeks. In fact, for the current quarter and the current year, not a single estimate has gone up in the past 60 days, while two estimates have actually gone lower in the past week for the full year time frame.

The magnitude of these revisions has also been pretty intense, as investors have witnessed a dramatic cut to the consensus estimate in just the past month. For the current quarter, this estimate has fallen from $0.91/share 30 days ago to just $0.78/share today, while the current year has fallen from $3.71/share to $3.48/share in the same time frame.

And though TGT has a pretty good track record when it comes to beating or at least meeting earnings expectations, recent weakness in the sector doesn’t bode well for the company. For these reasons, we have given TGT a Zacks Rank #5 (Strong Sell) and urge investors to consider other companies until Target can get its act together.

Other Picks

As we have discussed, the retail discount industry is very weak, with its current Zacks Industry Rank putting the space just outside the bottom 20% of all industries. Furthermore, of the 14 companies in this grouping, 13 have ranks that are 3 or worse, including five companies with ‘sell’ ranks.

The lone outlier in this group is Burlington Stores (BURL - Free Report) , a stock that is currently a Zacks Rank #1 (Strong Buy). The company saw a positive surprise last quarter, and it has also seen some positive earnings estimate revisions lately, so it could be a better discount retail pick than TGT, at least in the near term.

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