Morningstar Rating

Stock Research and Analysis

by Ken Perkins

Bulls Say

There is a significant growth opportunity in Canada that could accelerate earnings growth at Target to double digits once the rollout is complete.
PFresh and REDcard should help to drive store traffic, delivering enough expense leverage to offset the negative impact on gross margins from those initiatives.
Target's sale of its credit card receivables business, which transferred all default risk to a third party, allowed the company to pay off a significant amount of debt, lower interest expense, and repurchase shares. Read more 

Bears Say

Target's ROICs have declined since the PFresh initiative transitioned a larger portion of assets to the lower-return food business.
Economies of scale are no longer an advantage against Wal-Mart and Kroger, the number-one and -two share leaders in food, respectively.
Target's entry into Canada has faced challenges due to considerable competition. Canada may prove to be a more mature and difficult market to crack, as opposed to an untapped one with an abundance of exploitable growth opportunities. Read more 

Management

Although Target's returns on invested capital have declined over the past few years, we believe management has made the right strategic decision to deploy (to a much higher degree) inelastic food products. In our view, driving consistent comps in general   Read more 

Profile

Target is one of the largest retailers in North America, with about 1,800 units. Target's large-format stores offer general merchandise and now a full assortment of food   Read more 

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