Last week Janney Montgomery Scott analyst David Strasser downgraded shares of Target to neutral from buy. He offered a litany of things that could go wrong with the Target story, which were subsequently refuted by someone named Will Ashworth on the website “Investopedia.”
Ashworth’s argues that Strasser is missing the big picture and offered three key reasons why. First up is the issue of Canadian expansion. Ashworth lives in Canada and asks, “Have you been to Canada and seen the state of retail in this country? Ask any Canadian whether they'd prefer a newly renovated Target store at their local shopping center or an old, run down Zellers, and the answer is unanimously in favor of change. We might be sentimental, but that doesn’t mean we all want to shop at Walmart.”
Canadian retailers like Loblaw, Canadian Tire and Shoppers Drug Mart have reason to worry, according to Ashworth.
“First Walmart messed up their sandbox, and now Target will do the same,” he said.
Credit card receivables is another issue, and it is a good thing the company is selling the remainder of its portfolio.
“For a long time, Target management argued vehemently that the credit card business was integral to its success. Guess what, they were wrong,” according to Ashworth. “If you owned Bank of America would you sit idly by as it opened a chain of apparel stores? Of course not. So why should Target shareholders accept the reverse? It is in the retail business, plain and simple. Any focus away from that is misplaced energy no matter the profit potential.”
Lastly, Target’s stock price, which is at or near the 52-week low of $45.65, is cheap based on historical valuation levels. Ashworth contends shares of Target should be trading at $70.53.
“Target's not perfect, I'll grant you. But it has a lot more going for it than some people care to admit,” according to Ashworth.