Credit Suisse downgrades Target (TGT) to NEUTRAL and cuts its target $10 to $50. Target’s internal credit-card business continues to be a mess and while they are gradually reaching price parity with Wal-Mart (WMT), consumers don’t see it that way yet. So yet another low-cost retailer supposedly shelter-from-storm in recession bites the dust. CS:
Credit deterioration worse than expected:
While we hate capitulating, we do not see how these shares can outperform until the credit business begins to stabilise. American Express commented on Monday that credit quality grew significantly weaker in 2Q08 and June in particular. AmEx expects economic weakness in the US to worsen throughout the remainder of the year and negatively impact credit trends. Target’s disclosures on Tuesday showed acceleration in credit metric deterioration, with delinquencies of 30 days or greater reaching a new high of 6.6% of end of period receivables and charge-offs reaching a new high of 9.6% of period-beginning receivables
New focus on price is the right strategy, but it will take time:
Target’s core merchandising seems more competitive than ever, but it is not getting the same traction from consumables now as it did from fashion in the last upturn. Our latest Chicago-based pricing surveys show that Target was priced only 1% higher than Wal-Mart in core consumables, a differential that likely seems much greater in the eyes of the consumer…we believe this re-focused message could take time to resonate with the consumer.
Credit Suisse downgrades Target (TGT) from Outperform to NEUTRAL, target cut from $60 to $50.