CEO Scapegoat No Reason To Buy Target
Target, $TGT, investors are not content with a scapegoat.
The stock sank 3% Monday after CEO Gregg Steinhafel resigned amidst continued fallout from a December data breach that exposed tens of millions of Target customers’ financial information to hackers. Chief Financial Officer John Mulligan will serve as CEO in the interim as the company evaluates leadership options.
$TGT Is the CEO just the scapegoat for the cybersecurity problem etc? He got his severance so let's see if more problems surface.
— Rayne Woo (@Rayneman) May. 5 at 09:40 AM
Investors on StockTwits’ doubted that Steinhafel’s departure made Target’s data anymore secure—or the stock more attractive. Sentiment on the stock was 56% bullish, 44% bearish, according to StockTwits’ analytics.
Hackers gained access to about 40 million Target customer credit and debit cards numbers and as many as 70 million emails and telephone numbers after the company’s computer systems were compromised. The breach can be traced back to a phishing email opened by a vendor that linked with Target’s computer system, according to prominent security blogger, Brian Krebs—a former Washington Post writer who first uncovered the Target breach.
Target offered free credit monitoring to affected customers and is spending $100 million to implement a more secure payment system for Target cards. The company also decommissioned vendor access to its servers and adopted two-factor identification for Target employees.
Still, the stock has yet to recover from the data breach. It is still down 2% since Dec. 19 when Target first disclosed customer data had been compromised.
Credit-rating firm Moody’s characterized Steinhafel’s departure as a negative for Target. In a statement, Moody’s Vice President Charlie O’Shea called the timing of the CEO’s departure “inopportune.” The firm did not cut Target’s rating, however, O’Shea said it would watch the search for a replacement carefully. “In the event the search for a replacement is protracted, or if during this process there are indications of any changes in strategy or financial policy… negative rating pressure would occur, with an outlook change to negative a likely outcome.”
— SIAnalystWire (@AnalystWire) May. 5 at 12:26 PM
To be sure, some investors said that Target shares should rally on the opportunity to move forward from the crisis with a new CEO and, hopefully, a clean slate. They argued that Monday’s “dip” was a buying opportunity.
$TGT Target targeted for "doing the right thing," holding the CEO responsible for not handling a major issue well. Sell June cov. calls.
— David Durand (@SunAndStorm) May. 5 at 11:31 AM
But others said that, even if today’s news is viewed through a positive lens, Target still has too many challenges to warrant buying the stock. Same store U.S. sales fell 2.5% in the fourth quarter, compared to the prior year. The company blames the data breach for keeping U.S. customers away, however some investors argue its product mix has become less appealing to consumers. Also, the company still faces risks of credit card companies demanding reimbursement for alleged counterfeit fraud purchases and civil litigation.
I'm a Target fan but they need to do more before I can say it's a buy. Today's news is good, but more is needed. $TGT
— Eddy Elfenbein (@EddyElfenbein) May. 5 at 11:10 AM
Perhaps most importantly, Target is still struggling to gain traction in Canada. The company opened 124 stores in the U.S.’s northern neighbor, starting last year. It made $623 million worth of sales in Canada during the last three months of the year, but with a margin of only 4.4%. Canadian operations reduced Target’s earnings in the fourth quarter by $0.40. They reduced earnings in 2013 by $1.13-per-share.
Given Target’s challenges, investors said Monday not to feel bad for the CEO, who has a generous severance package, but for holders of the stock.
$TGT If fired,CEO gets 9.2M from ODCP+11M severance+6.3M RSU; TOTAL 26.6M.Don't feel sorry for him but feel sorry for the stock and longs ;)
— Rayne Woo (@Rayneman) May. 5 at 01:30 PM
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