Please join us Wednesday, September 21st at 11:00 AM ET for a call reviewing our Black Book on Best Idea Short, Target (TGT).
There are a lot of reasons why we don’t like Target. It’s not because of any one factor, as most of those – at least in isolation – are known. But what is underappreciated (in a very big way) is the cumulative effect of a decade of mediocre/reckless decision making that has left the company in a difficult position – a position without the leverage to drive the business, the P&L, and cash flow going forward without eroding returns. We think this is probably in numbers for the back half of this year. But this company will have to back off of guidance and expectations, and ultimately take necessary steps (higher investment) to maintain competitive position, or else see continued top line pressure and earnings misses. We’ll walk through how we think it all plays out from here on Wednesday.
Simply put, Target has historically been largely a macro call, as has Wal-Mart. But we increasingly think it’s clear that this is no longer the case. We think what is missing in investors’ minds on this one is the duration that this sub-par performance will rear its true form. Our estimates are 15% below consensus next year, and 30% by 2019.
One thing we balance with all of this is that the biggest thing this name has in its favor is that after all, it is Target. Will it be here in 10 years? Yes, it will. Will Kohl’s? Probably not. Bed Bath & Beyond? Not sure. Best Buy? Probably not. Ultimately this company will probably survive without egregious mismanagement. But we don’t like companies that simply survive – especially without respecting the precarious position they’re in today – and Target is definitely in one from where we sit. The company will likely ultimately do the right thing, we just think it will be costly before it ensures survival.
Call Details
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Confirmation Number: 13645612
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