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Is Target Trying to Tell Us Something?

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Board boots CEO two weeks before earnings report is due.

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Stay tuned for Target's (NYSE:TGT) earnings report on May 21. Surely that had something to do with the abrupt firing on Monday of company Chairman, President, and CEO Gregg Steinhafel.
 
After all, Steinhafel kept his job after profits in the last quarter of 2013 fell by 46%, a drop attributed in part to a devastating data breach by unknown hackers that compromised the personal information of tens of millions of consumers who used credit or debit cards at Target.
 
In fact, it has been five months since the data breach was first reported, and nobody knows how long it might take the retail giant to regain the trust of its consumers and investors.
 
Target's stock is still down nearly 6% since the disclosure of the hacker attack. It closed down 3.45%, at $59.87, on Monday after the announcement of Steinhafel's departure.
 
The company has taken other measures that might help restore confidence over time, including a decision to move up the timing of the introduction of a more secure credit card system.  
 
Ironically, once Target gets that system into place in early 2015, it could have the safest credit card system in the US.
 
That's not saying much. American retailers have for 20 years resisted upgrading from the magnetic strip card to newer, more secure models, such as the one in use in Europe. The more secure systems have an embedded chip and require either a PIN entry or a signature to complete a sale.
 
Wal-Mart (NYSE:WMT) has upgraded to the chip-and-signature model, which isn't considered as secure as the chip-and-PIN alternative, but is seen as quicker and easier to use. Target is going with the chip-and-PIN model.
 
Certainly, executives of other major US retailers may be rethinking their customer security strategies in the wake of Steinhafel's firing. But yesterday, investors were rethinking Target, given the timing of Steinhafel's departure.
 
On Fox Business on Monday, Deutsche Bank retail analyst Paul Trussell said, "The company had the opportunity to come out, reiterate its earnings forecast for the first quarter, which is now behind us, or the full year, and they did not do so. So, part of the stock's weakness (today) is the potential that the management team walks away from the current near-term and long-term earnings view."
 
Goldman Sachs took a more positive view, but in the process it pointed out that the data breach isn't the company's only problem. After the announcement of Steinhafel's departure, Goldman Sachs reiterated its "buy" rating on Target, with a price target of $69. "We believe that a change in management may help TGT address some of its challenges -- notably, underperformance in Canada -- with a new perspective; the company has not been sufficiently concerned about the underperformance of that launch, in our view," said analyst Matthew J. Fassler.
 
Target moved aggressively into Canada in early 2013, only to lose nearly $1 billion on the project over its first year. The company had projected a first-year profit.
 
A company statement said Steinhafel "held himself personally accountable" for the data breach, which ended his 35-year career with the company. Chief Financial Officer John Mulligan was named interim president and CEO.

Also see:

Russian Internet Companies Surf the Backwash From Ukraine

Twitter: Dead or Alive? 
 
Tech Stocks: To Gogo or Not to Gogo? 

Why Amazon's Smartphone Will Be Dead on Arrival 


 


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No positions in stocks mentioned.
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