I know Target (TGT) is a consensus short. But there are times when the consensus is simply not a) bearish enough, and b) bearish for the right reasons.
Remember in 2014 when Target’s earnings came down by $0.60 and the stock went up 30%? Unless we see consumer stocks egregiously revalued or Target is acquired (no), I’ll venture as far as to say that the whole ‘EPS down and stock up’ is well beyond improbable.
The way I see it, Target CEO Brian Cornell takes one of three paths on Tuesday…
- He takes down comp guidance to something negative for 3-4 years, takes up SG&A, Capex, and keeps earnings flat for the remainder of this decade. There’s your most bullish outcome.
- He sticks by his ‘comp up forever’ mantra, while ‘prudently managing costs and capital deployment’. This is what gets the company to a point where Cornell won’t lead next year’s analyst meeting.
- We see something in between – which is likely to continue the drip drop of market share loss, and margin/ROIC erosion, and takes away every part of the value proposition except stock repurchases – a strategy his team is horrible at executing upon.
When all is said and done, this company and management team is in deep trouble regardless of what its talking heads do or say. At $66 this matters a lot.
This seems to me that it’s like what Macy’s was a decade ago – and that’s when it underperformed that market by 50%. Target is likely to follow unless it takes down expectations materially – not by sandbagging, but by genuinely investing far more capital into this model than the Board of Directors is likely to consider.