Target Card Business In Play

For one, Davidowitz suggests that Target has been able to outpace rivals Wal-Mart (WMT Quote) and Sears without cutting prices, largely because it was able to push its credit cards to its customers -- and rack up juicier profits.

"Their record is superb, but the one lingering question about Target is in the credit business," says Davidowitz. "How much of sales growth is really associated with credit extension?"

There's certainly cause for concern, given the run-up in credit tied to the overwrought mortgage lending boom. The fear now is that consumers may have been getting hopped up on leverage not just in the home arena but in credit cards as well.

If that's the case, Target's growth prospects could be seriously crimped, suggests Davidowitz.

On the other hand, Whitney Tilson, founder and managing partner of investment firm T2 Partners in New York, believes that if any retailer has been prudent in this uncertain environment, it has been Target.

"Target, if anything, has been very conservative," Tilson says. He says Target has maintained a relatively pristine portfolio by extending credit to only the most creditworthy customers with the highest FICO scores.

Target is the largest holding for Tilson and his funds, which own some 600,000 shares and options of the discount retailer.

Pershing Square's Ackman believes that Target has much more room to grow and can further eke out value by shedding its credit card operations and ancillary real estate assets.

Even if it does make sense to attempt to hawk the credit card operation, the recessionary atmosphere on Wall Street could narrow the field of possible buyers.