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Takeaway: We’re presenting a new BlackBook outlining why it’s the big loser in Amazon’s escalating battle with Wal-Mart. 30-35% downside from here.

Any way you cut it, Target is a battleground stock right now. The stock is trading near all time highs, sell side sentiment is the most favorable since 2013, and short interest is testing multi year lows. Bulls point to the ‘fact’ that its only trading at 15x earnings/9x EBITDA and the company has been executing in driving traffic both in store and on-line. But we don’t buy it. It’s one of our top short ideas today.  This is retail folks….things can and do change very quickly. The sentiment today (trough FCF yield) appears to be like how people thought of KSS six+ months ago when that stock was at $78 and it had ‘cracked the retail code.’  We know how that ended…  This is at the same time when retail sales are slowing, Quad 4 is here (when discretionary gets crushed), the battle between TGT, AMZN and WMT for speedy home delivery is intensifying materially, and our work says the company has to put up 4% comps or better for the year in order to hit consensus EPS estimates. We’re presenting a BlackBook next Wednesday July 17 at 10am EDT to vet through critical issues to the story right now including…

  1. Competitive positioning vis/vis WMT and AMZN as it relates to home delivery offerings, how each of those organizations are out-maneuvering Target, and the capital each company is allocating accordingly.
  2. The resulting customer value proposition, and likelihood for success – especially as Macro growth slows.
  3. Profitability on the delivery model for TGT vs AMZN and WMT.
  4. Embedded cost pressure (especially wages) in the TGT model – fixed vs variable – and what TGT can do if it fails to deliver on the top line.
  5. Category growth initiatives – including toys, beauty, and new product lines (like Vineyard Vines).
  6. New store concepts, including smaller markets, and impact on comp.
  7. Traffic and comp in context – ecomm vs store, and profitability/accretion/dilution of each.
  8. Gross margin trajectory – bull and bear drivers.
  9. Inventory positioning – both stand alone and relative to competitors heading into 2H.
  10. Where can we be wrong, and what could make the consensus bull call right? 

Ultimately, we’re coming out 10% below the consensus for 2H, and 17% below for next year. If our numbers are right, then we’re looking at a re-rating to 12-13x earnings or lower, 6.5-7x EBITDA, and a 6% FCF yield. That gets us to a $60 stock, or about 30-35% below current levels.

Call Details
Date/Time: Wednesday July 17 at 10AM EDT
Toll Free:
Toll:
UK: 0
Confirmation Number: 13692426
Live Video Link: CLICK HERE

TGT | Best Idea Short BlackBook - 7 9 2019 TGT Fin Table