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An Open Letter To Target Management | $TGT

Takeaway: Winners find a way to win. But TGT points fingers while #failing to reinvest for growth.

Editor's Note: Below is a brief excerpt from an institutional research note written by Hedgeye Retail analyst Alexander Richards. For more information about our institutional research contact sales@hedgeye.com

 

An Open Letter To Target Management | $TGT - TARGET cartoon large

 

The obvious place to start the conversation on TGT would be on the numbers, and the company gave us plenty of ammo to poke holes in the print this morning. But we think the far greater concern for the long-term health of this company is the lack of definable plan or any clear insight by the management team as to what actually caused the worst quarterly comp number since the data breach and subsequent guide down for 2H16.

 

We heard a lot of excuses, everything from Apple products losing their cache, to deflation, e-commerce pressure, and soft Rx traffic. Which all may be legitimate in their own right – but we have a NEWSFLASH for Cornell and team...

 

This is something we like to call RETAIL. The environment/consumer isn’t going to throw anyone a bone, especially at the tail end of a seven year economic expansion. In this sport, only losers point fingers. Stocks that make investors money on the long side find a way to win. Target is doing the opposite.

 

All in, we think this is all very characteristic of a management team playing defense instead of offense. Need further evidence? How about 2 consecutive quarters of earnings beats generated by cost cuts and share buy-backs with the stock at or near all-time highs. We’d argue that the team in Minneapolis would be better served missing expectations and taking down numbers by 2x the rate we saw today in order to build a superior platform from which to grow.

 

That may sound harsh, but after running through the numbers and sitting through the 60-minute conference call, we were still left asking what actually happened? In the absence of a clearly articulated answer from the TGT C-Suite. Meanwhile, we think Target is underinvesting in its business at a time when the Retail industry is becoming more competitive.

 

We expect Target to continue to lose market share.


Capital Brief | Election 2016: Fasten Your Seat Belts People

Takeaway: Mail Call; Scorched Earth Policy; Fish Or Cut Bait

Editor's Note: Below is a brief excerpt from Hedgeye Potomac Chief Political Strategist JT Taylor's Capital Brief sent to institutional clients each morning. For more information on how you can access our institutional research please email sales@hedgeye.com.

 

Capital Brief | Election 2016: Fasten Your Seat Belts People - JT   Potomac under 1 mb

MAIL CALL

Inboxes on Capitol Hill are full of unread Clinton emails having received the Clinton-FBI interview notes. The Republican caucus is now sifting through pages of detailed summaries, inspecting every nook and cranny for a smoking gun. You could see this coming from a mile away - it’s an election year and Republicans are slipping and have little to show on the accomplishment front for the past seven months. No new findings are expected, but the House Judiciary Committee plans to press the FBI in next month on allegations that Clinton committed perjury. As we’ve seen in the past, Republicans do have a tendency to overextend, and while it truly does deserve a vetting, let’s hope it doesn’t supplant the duties of Congress (pass a budget).

SCORCHED EARTH POLICY?

Freshly-minted Campaign Chair Steve Bannon’s mission is almost perfectly aligned with Trump’s – he’s a rabid fighter, enraged by Washington and Wall Street insiders, the Republican establishment and the Clintons. Known as a devil-may-care conservative, Bannon’s populist and nationalist sympathies reflect his longstanding disgust with both major political parties, which perfectly outlines his overall objective - disrupt the narrative. Bannon has been floating around the campaign for a while now, and is expected to be an expansion of Trump’s mind and values. With the Republican party also in his crosshairs, the Trump campaign may widen the gap between themselves and the party, and run their campaign however they may choose.

FISH OR CUT BAIT

Usually a campaign shakeup this late in the game shows a struggling candidate righting the ship, but not here - more Trump is expected, and the move is irking Republicans. A letter, signed by more than 120 Republicans, warned the RNC that Trump is a threat to House and Senate seats, and the RNC should refocus resources to down-ballot races instead. The RNC is standing by Trump…for now, and won't make a decision until the fall. Not wasting any time, Republican PACs are investing heavily in down ticket races, while ignoring the presidential campaign. With the final leg of the election kicking off after Labor Day weekend, the RNC will need to make a final decision – keep him or toss him back in the water. Either way, the party is likely to feel the repercussions for cycles to come.


Daily Market Data Dump: Friday

Takeaway: A closer look at global macro market developments.

Editor's Note: Below are complimentary charts highlighting global equity market developments, S&P 500 sector performance, volume on U.S. stock exchanges, rates and bond spreads, key currency crosses, and commodities. It's on the house. For more information on how Hedgeye can help you better understand the markets and economy (and stay ahead of consensus) check out our array of investing products

 

CLICK TO ENLARGE

 

Daily Market Data Dump: Friday - equity markets 8 19

 

Daily Market Data Dump: Friday - sector performance 8 19

 

Daily Market Data Dump: Friday - volume 8 19

 

Daily Market Data Dump: Friday - rates and spreads 8 19

 

Daily Market Data Dump: Friday - currencies 8 19

 

Daily Market Data Dump: Friday - commodities 8 19


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The War On Active Management - Part 2

Takeaway: Lipper is reporting another -$4B in outflows from U.S. equity mutual funds while passive equity funds took in another +$4.3B WoW.

The war on active management continues with U.S. equity beta trouncing most strategies YTD.

 

This morning, Lipper is reporting another -$4B in outflows from U.S. equity mutual funds while passive equity funds took in another +$4.3B WoW. We’ve written extensively about the upside capitulation we’re seeing in the SPX futures and options data and via the reversal in style factor performance – which itself reeks of a massive career-risk driven chase.

 

With high beta stocks up +19% and Utes down -30bps since the June 27th Brexit v-bottom, we’re again starting to see opportunity on the long side of lower-for-longer strategies for those investors who’ve missed the big move.

 

Take a look at the style factor breakdown below:

 

The War On Active Management - Part 2 - style factor 8 19

 

***Editor's Note: The snippet above is from a note written by our Macro team and sent to subscribers this morning. Click here to learn more.


CHART OF THE DAY: Doh! A Closer Look At Faulty Fed Forecasts

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye Director of Research Daryl Jones. Click here to learn more. 

 

"... In the Chart of the Day, we show the course of Federal Reserve GDP projections over the course of the last years. As the chart shows, they have been down and to the right. For those newish to reading charts, that means that growth has been gradually slowing and so the Fed's projections have been coming in."

 

CHART OF THE DAY: Doh! A Closer Look At Faulty Fed Forecasts - 2 dj


Cartoon of the Day: All Aboard?

Cartoon of the Day: All Aboard? - Stocks Titanic cartoon 08.18.2016

 

Did you buy the all-time highs in U.S. equity markets?

 

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