Wells Fargo Upgrades Target (TGT) to Outperform; Canada Dilution is Peaking

March 1, 2013 6:48 AM EST
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Price: $66.77 -5.88%

Rating Summary:
    7 Buy, 22 Hold, 3 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 11 | Down: 20 | New: 54
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Wells Fargo upgraded Target (NYSE: TGT) from Market Perform to Outperform and raised its valuation range to $73.00 to $78.00 from $61.00 to $65.00.

The firm cited: "(1) Canada dilution is peaking, and operating metrics should improve optically starting in Q2 2013. For example, we estimate earnings growth will go from -7.3% in Q1 2013 to roughly flat in Q2 2013 to +13.2% in Q3 2013. (2) The PFresh grocery remodel program and the 5% REDcard rewards program enhance frequency and customer loyalty, and are still providing a meaningful comp tailwind and built-in growth (we estimate together these initiatives will continue to drive approximately 300bp in comps in 2013, 160bp in 2014, and 140bp in 2015). (3) Target appears to be making a more aggressive push in eCommerce and omni channel given its recent external senior hire from Gilt Groupe (also previously at Amazon), and plans to significantly increase IT related capex this year. We estimate online sales drove 50-70% of the 0.4% comp in Q4. (4) Target is a relatively defensive play in retail given its increasing exposure to consumables (household essentials and food/pet supplies made up 44% of revenue in 2011, up from 32% in 2006) and exposure to the housing recovery (home furnishings/d├ęcor and hardlines made up 37% of revenue in 2011)."

For an analyst ratings summary and ratings history on Target click here. For more ratings news on Target click here.

Shares of Target closed at $62.96 yesterday.

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