Shares of Target may hit $100 six or seven years from now, but looking ahead to next year Morgan Stanley analyst Mark Wiltamuth believes the stock should be trading at $64. He recently initiated coverage of the company with a “buy” rating and, like some other analysts, believes investors may be seeing a once-in-a-generation opportunity to purchase shares at valuation levels depressed by uncertainty around the company’s entry into Canada.
According to Wiltamuth, shares of Target recently traded at a 15-year-low on a price to earnings basis and the negative sentiment is almost entirely due to uncertainty around the magnitude of start-up costs related to the company’s 2013 entry into Canada.
“Looking ahead a year, we believe investors will have full visibility of 2012 start up costs and the market will be valuing Target on 2013 estimates and what we estimate will be a 16% to 20% longer term earnings per share growth rate,” Wiltamuth wrote in his coverage initiation report. He arrives at a $64 price target by applying a conservative forward looking price to earnings ratio of 12.5 to his projection that 2013 earnings will hit $5.15.