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Lazard's Ridiculous Target Call Gets a Pass

Marek Fuchs

Anyhow, I'm battered and sad. Why?

Target(TGT Quote) was downgraded by a Wall Street firm, which the business media reported straight, missing an easy opportunity to explain to readers just how broken, self-serving and downright surreal Wall Street ratings can be. That of course confirms how willing the business media is to play along without pointing it out, needlessly confusing you, the savvy investor.

Take this Associated Press story that appeared on CNNMoney.com. The headline used the words "Target" and "casualty" in the same sentence, so I naturally assumed the worst: Get a body bag! Not only that, but Target, a quality company no matter the current environment, was portrayed as merely the "first casualty" of the holiday season. Make that body bags, plural!

It turns out, of course, that we won't even need a body bag for Target, but let's not let reason stand in our way just yet; first let's go over the alarmist headline -- Target "first casualty of the holiday season" -- and the straight subheadline: "Lazard analyst downgrades the discount retailer on weak holiday sales."

The lead of the story goes big and wide.

A Lazard Capital Markets analyst on Thursday became the latest on Wall Street to cut profit estimates on Target after the discount retailer reduced December sales projections amid a weak holiday retail season.

Yup, it's not just Target, and the Lazard analyst -- and I use that term solely for convenience's sake -- was "just the latest" to cut estimates. And the holiday season is weak, which we can't argue with.

But hold your cotton pickin' horses. That analyst, who is later quoted in the article calling Target "the first casualty of the holiday season," also says later in the piece that there was an increase in recent traffic and labels it "too little too late," which is fine as a numbers trim, but to go from recent momentum to first casualty?

Regrettably, that's not even his chief offense, which was completely ignored in the entire body of this article.

Let us now look at this doomsayer's price target on Target. Remember, savvy investor, this is "the first casualty of the holiday season" we are talking about here.

This analyst -- and again, we use the term loosely -- had a $67 price target on Target before this downgrade. In this note where he flagged the company's pain, he lowered his price target on Target a full $2. "I want my two dollars!"

Yes, he took his target on this $50 stock that is "the first casualty of the holiday season" to $65 from $67. That's all but a rounding error, and it's still calling for a more than 25% gain. Yet the analyst used vocabulary appropriate for war that the business media dutifully, casually, with lack of independent thought, parroted. A cut to $65 from $67 is less casualty than uninfected scratch.

MarketWatch managed to mention it in this quick summary, even if it did not take the time to really point up its ridiculousness.

And what would we learn from really delving into the silliness of all this? Well, for one: The two buck quasi-trim in price target on Target puts to rest any of the more incendiary language used by both the analysts and their appendages, the journalists.

Moreover, the business media lost a perfect opportunity to instruct the savvy investor on how the Wall Street ratings game can work. In many cases -- like this -- it's perfectly calibrated.

See how the analyst cut numbers so slightly that you hardly notice? The price target trim was truly a joke and even the fourth quarter was just cut back by 5 cents, to $1.25. If Target recovers quickly, and the Lazard alarmist, err analyst, says it seems to have had a better recent few days -- he can claim to be right. "I only cut my price target on Target to $65. That's almost like keeping it the same. I knew."

And if Target reels? If the "too little too late" turns into a false start of a recovery?

Well, that's where the incendiary language that ran completely counter to the minuscule numbers tweak comes in. Then he can say "I told you it would be the first casualty! I knew."

That the business media plays along without fighting back makes it worse and confuses a lot of investors. Now you know why I look so battered and sad. Beware and be aware.