Target 'Admirable' in Tough Economy - UBS

One way to gauge the health of a company – particularly in the retail sector – is too see how well it holds up in tough economic times. Target Corp.’s (TGT) first half results show it is doing an “admirable” job managing its assets against a tough economic backdrop that is expected to persist for the rest of the year, says UBS analyst Neil Currie.

He raised his 2008 earnings per share [EPS] estimate for Target by a penny to $3.41, which is based on flat comparable sales growth in the third quarter and a 2% gain to close out the year. He noted that his earnings expectations for the second half of the year hinge primarily on sales performance. (See earnings call transcript.)

Target has reduced its capital expenditure budget through 2009 from a range of $4.5-$4.7-billion to $4.1-$4.3-billion and has slowed its store growth plans for next year, but Mr. Currie said this is a reaction to the slowing U.S. economy, not a weak business model.

Nonetheless, he is advising caution and maintained a “neutral” rating given economic and consumer credit trends. The analyst’s price target remains C$53, a slight premium to the market multiple but a substantial discount to Target’s historical mean.

Amounts shown in US$ unless otherwise indicated.