Target Targeting Its Own Targets (TGT)

September 12, 2007 by Douglas A. McIntyre

Target Corporation (NYSE:TGT) shares traded up 1.5% to $62.72 in normal trading today, but shares are up another 2% in after-hours trading. 

The red-dot announced today that it is reviewing potential ownership alternatives for its credit card receivables, which is an asset worth what it says is approximately $7 Billion.  Beyond that, it will re-evaluate its use of debt in its capital structure and its pace of share repurchases. The company said it expects to complete these reviews by the end of December.  It is also declaring its regular $0.14 dividend as well.

The review of its credit card receivables will be focused on the economics of possible alternatives and will include an examination of possible differences in growth rates and credit risk exposure between the current direct ownership model and other possible ownership structures, the cost of debt and equity capital to fund receivables, and current and future liquidity considerations.

Goldman Sachs has been engaged to advise the company in this review to see if it or another financial institution should own its credit receivables.  Target also noted that a sale of any, or all, of the company’s credit card receivables this capital structure review will also include an analysis of the appropriate application of proceeds.  That will include current and future share buybacks.  It will also specifically not consider taking any deliberate actions that would jeopardize its current short-term debt ratings and it expects to maintain the necessary credit profile to preserve our long-term debt ratings within the “A” category.

At $64.30 in after-hours, this gets shares to within about 10% of its yearly high.  The company sounds pretty adamant that it is not going to overextend itself over near-term buybacks that might drop its liquidity and it wants to keep its balance sheet quite clean.

Jon C. Ogg
September 12, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the 24/7 Wall St. Special Situation Investing Newsletter and he does not own securities in the companies he covers.