Back to top

Target Issues Corporate Bonds

Read MoreHide Full Article

According to Bloomberg, Target Corporation (TGT - Free Report) in an attempt to support its future growth strategies of increasing store counts and acquisitions, has recently issued corporate bonds worth $1.0 billion with a maturity period of three years.

We believe it was a smarter move on Targets' part since the credit market has normalized and funds are available at lower interest rates. The company has issued $350.0 million 1.125% notes and $650.0 million at a premium of 17 basis points over 3-month LIBOR rate.

The second-largest U.S. discount retailer, Target Corporation may utilize the funds for acquisitions, building new stores, upgrading existing stores, share repurchase or refinancing debts. In 2010, the company issued $1.0 billion 10-year notes at a coupon rate of 3.875%.

Prior to this, Target Corporation posted better-than-expected first-quarter 2011 results on the heels of improved profitability across credit card business that helps in alleviating lower-than-expected sales results witnessed at retail stores.

The quarterly earnings of 99 cents per share beat the Zacks Consensus Estimate of 94 cents, and rose from 90 cents earned in the prior-year quarter.

Target's Road Ahead

Management indicated that Target's store remodel program, 5% REDcard Rewards program and the new platform will help sustain sales momentum and would continue to drive traffic while boosting customer shopping experience.

After 341 P-fresh remodels in fiscal 2010, Target had hinted that it is expecting to remodel nearly 380 stores in 2011, including an expanded grocery offering, improved store layout and enhancement of in-store shopping experience across departments, such as beauty, home, electronics and video games.

Moreover, by the end of 2011, Target plans to introduce P-fresh in-store food and grocery sections in approximately 850 discount stores. The company expects P-fresh to boost 2011 comparable-store sales by 1% to 2%. Currently, 550 stores have expanded its food layout.

Another opportunity, which Target is eyeing, is the opening of stores in international markets, such as Canada and Latin America. The company plans to open 100 to 150 stores in Canada by 2013 and 2014 as a result of acquisition of leasehold interest in Zellers' stores. We believe the opening of stores outside the United States will definitely boost the company's top and bottom lines and improve its cash flow generation capability. The transaction would help the company to exceed $100 billion in sales over the next six to seven years and would result in earnings per share growth at a CAGR of approximately 10% to 12% per year, resulting in annual earnings of $8.00 per share or more by 2016 or 2017.

Target, which currently operates 1,755 stores in 49 states, faces stiff competition from Wal-Mart Stores Inc. (WMT - Free Report) . Currently, we have a long-term 'Neutral' rating on the stock. Moreover, Target holds a Zacks #3 Rank, which translates into a short-term 'Hold' recommendation.

In-Depth Zacks Research for the Tickers Above

Normally $25 each - click below to receive one report FREE:

Walmart Inc. (WMT) - free report >>

Target Corporation (TGT) - free report >>

More from Zacks Analyst Blog

You May Like