Is Target on Thin Ice?

Kelley is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

I have been considering writing about Target (NYSE: TGT) for some time now, and when I saw this image taken by the Minnesota State Patrol on 1/6/2012 I knew it was time. I would like to point out that normally at this time of year in Minnesota a semi can drive on the ice without breaking through. This is just another sign of the unusually warm winter we have had. I guess warmer weather really has been affecting Target's bottom line.

<img src="/media/images/user_111/target-truck_large.jpg" />

At this time last year, Target’s share price was, perhaps, not falling through the ice, but certainly on a steady decline. After hitting a high of just over $60 a share, shares of Target have been struggling ever since. I was hopeful when it stayed above $50 a share for most of the past three months, but here we are again in the high forties.

Target is in a competitive market and faces a lot of headwind in the form of Costco (NASDAQ: COST), Wal-Mart (NYSE: WMT), and Amazon (NASDAQ: AMZN). Feeling pressured, Target? Signs point to yes. Weaker than expected sales and a recent downward revision of guidance certainly makes it seem as though Target has an uphill battle ahead of it. They attempt to give their costumers deeper and deeper discounts, which of course affects their bottom line. Over this past holiday season they kept their stores open longer and have even offered free shipping on certain online purchases, clear signs of competitive pressure.

But let’s not be too hasty in our assessment of Target, it has some great things on the horizon. Target is expecting between 125 and 135 stores to open in Canada in 2013, their first international move. They have also announced a City Target, which will open in Chicago and will be focused on the urban shopper. And just the other day there was a new rumor that they will team up with Apple (NASDAQ: AAPL) and will have mini Apple outlets in their stores. I love it when Target teams up with other companies. I live in a town of ten thousand and I still wouldn’t be within 75 miles of a Starbucks (NASDAQ: SBUX) if it wasn’t for the one in the local Target. The real question is whether these alliances do more to help Target or their ally, a topic for another time perhaps, but one to consider if you have high hopes for Target based on these mini Apple outlets.  

I personally take the optimistic view of Target, the semi half out of the water view, if you will. I think they are making some good strategic moves that will pay off in the next year or two (even their website is looking better) and I would be very surprised if the share price didn't become more in line with analysts’ estimates, which seem to be around the $58 a share range.  

In case you were wondering, the driver of the semi is fine.


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