Investors fled Target's stock Tuesday after the retailer cut its second-quarter profit outlook, citing costs related to its December 2013 security breach, as well as discounts and promotions to attract shoppers.
The revision sent Target shares down around 4 ½ percent, making it one of the worst performers in the S&P 500 on the day. The stock is now down more than 8 percent on the year, so could it be a bargain buy or value trap?
"We like this stock, we have it in several of our model portfolios," said S&P Capital IQ's Erin Gibbs.
Gibbs noted that Target could see further downside following earnings on August 20, and, in her opinion, has to overcome three manageable "challenges."
- Overcoming the impact of security breach is slow process of building back confidence, costs related to the breach, and the sales slowdown may persist for the next couple quarters.
- Canada stores have been disappointing but could be an area of above average growth over the next few years.
- Value conscious shoppers are compressing margins by waiting for promotional markdowns. Target has to lure shoppers back to big box stores.
"We see [Target] as having long-term growth. We're looking at about, even with reduced guidance, we're looking at about 15 percent earnings growth over the next 12 months, which is above the S&P 500," Gibbs said.
Challenges aside, the charts don't look appealing from a technical perspective. "Even with today's loss, we still see [Target] as a sell," said Oppenheimer's chief market technician Ari Wald. "We see much better places to put your money right now."
His reason is simple, trade in the direction of the stocks 200-day moving average. "For Target, that 200-day is down and that indicates that Target has a very weak long-term trend," Wald said. "This downward inflection we think could just be getting going."
Wald projected measured downside to key support at $55 per share, 5 percent lower than current levels.