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Target Aims for Fresh Strategy With New CEO

Challenges from Canadian operations and data breach await him.

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 Target (TGT) has announced that PepsiCo's (PEP) Brian Cornell will become chairman and CEO in mid-August. This is the first time that Target has appointed an outsider to this executive role, but the decision isn't completely surprising, given the need for a fresh strategic perspective in the face of several challenges. We believe Cornell's first order of business will be evaluating the Canadian operations, managing through the lingering impact from the data breach, and building out the company's omnichannel presence. We don't anticipate a material change to our $65 fair value estimate or our no-moat, stable moat trend, and standard stewardship ratings, at least until we have a clearer idea about Cornell's strategic vision.

Cornell has more than 30 years of experience at consumer product firms and retailers. His previous roles include CEO positions at PepsiCo Americas Foods, Sam's Club, and Michaels Stores, as well as chief marketing officer of Safeway. We think his experience in a variety of retail concepts, both traditional grocery and warehouse club, gives him a solid base from which to tackle the challenges of low customer switching costs in the retail channel. That said, there is still execution risk associated with repositioning the firm as a leading omnichannel player, and improving Canadian operations (or leaving the region) will take time. Thus, while the shares currently trade at a discount to our fair value estimate, we suggest that only long-term investors with a high tolerance for risk consider taking a position in this name.

Ken Perkins does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.