By selling its waning department store divisions, Target ( TGT) will finally be free of two monkeys on its back, a move most on Wall Street have applauded with great vigor. But once the divestitures are complete, can the lone Target division live up to the castle in the sky that analysts have built for it?

The going thesis is that once independent of its Mervyn's and Marshall Field's units, Target can more easily focus on its core division's differentiated discount store concept and deliver solid earnings growth. But at least one analyst believes the Street is being too optimistic and that a standalone Target isn't as big a growth machine as many assume.

"By creating a single unit company, investors will be able to see once and for all the remarkably inconsistent results Target stores register, and the company's continued inability to flourish in the face of even mildly difficult comparisons," said Eric Beder, a senior equity analyst at J.B. Hanauer & Co. in a Friday research note.

Target announced Thursday it will sell off the remainder of its Mervyn's unit as an ongoing business to an investor group for about $1.65 billion in cash. Included in the sale are 257 stores in 13 states, four distribution centers and $475 million worth of credit card receivables.

The investors are Sun Capital Partners, Cerberus Capital Management and Lubert-Adler/Klaff and Partners. General Electric's ( GE) consumer finance division will buy Mervyn's credit card accounts.

A month earlier, Target said it would sell its 62-store Marshall Field's chain, three distribution centers and $600 million in credit card receivables to May Department Stores ( MAY) for $3.2 billion.

Mervyn's and Marshall Field's have been a drag on Target for years. In 2003, Mervyn's pretax earnings fell 32.6% to $160 million on a 6.9% drop in sales, while Marshall Field's pretax profit dropped 21.1% to $107 million on a 2.6% decrease in sales, according to Target's financial statements.

However, even without those sluggish divisions, Beder says the company's future growth faces strong headwinds. First, he says, the company's credit card division will be stripped of its most mature, highest-yielding components in the Marshall Field's and Mervyn's sections. Additionally, Target Stores' own credit card division has been slowing in the last couple months, he said.

"People look at it as a big, shiny new growth story. That has not been the case at Target stores," Beder told TheStreet.com.

Indeed, same-store sales at the Target division have moderated in the last few years, compared to the late 1990s. In 2003, the company posted a 4.4% overall same-store sales gain, which was better than 2002, when same-store sales rose 2.2%. However, those results compared to 1999's 6.7% rise. For most of the mid-to-late '90s, in fact, the Target division had same-store sales around 5% or higher.

"Management's thesis that this has been a 15% grower just has not occurred in the last three to four years," said Beder.

According to Target's financial statements, the Target stores division's total pretax earnings increased 12.3% to $3.4 billion in 2003. They were $3.08 billion in 2002 and $2.5 billion in 2001.

But Beder noted in March that if results are adjusted for the rollout of the company's Target Visa program in 2001, the Target division had double-digit operating income growth when faced with a double-digit comparison during only two quarters in the last three years.

With credit card results included, the Target division has had quarterly operating income growth of 15% or higher in just five of the last 12 quarters, he said.

As a result, Beder said that the company is "so big that it's more a function that it grows more like the economy." With the economic turnaround possibly moderating, the potential for growth is in question. (J.B. Hanauer does not do investment banking and Beder does not own shares of Target.)

However, other analysts following Target say that shedding the two department store chains is key to the company's future growth.

David Campbell of Davenport & Co. agrees that 15% profit growth might be optimistic and said growth could slow, especially this year, but he still thinks the sale was a must. "The Target stores have a lot of growth potential, and they'll continue to do that," he said. "It would worry me if the stock were at a higher valuation. The stock is reasonably valued and the slowdown is priced in."

Shares of Target were lately up 6 cents at $44.39, just below their 52-week high of $47.40.

Target stores are still increasing square footage by 8% to 9% a year, Campbell said, which is a big positive for future growth. Another positive is that the company also has a redesigned, more shopper-friendly format for its new stores.

Assuming modest same-store sales growth and flat to slightly positive operating margins, Campbell sees 12% to 15% average annual earnings growth as possible.

"Sure, in the last few years the economy has been difficult and they have suffered with their comps, especially against harder comparisons. That very well may be the case this year. That lower-end customer still isn't very strong," Campbell conceded. But he is still planning for same-store sales growth of about 2% in the back half of 2004. (Campbell doesn't own shares of Target and his company does not do investment banking.)

And while Campbell admits Target's credit card receivables have slowed lately, they are still an important income driver for the company, he said.

Mark Mandel, an analyst at Fulcrum Global Partners, agrees that a standalone Target is better off. The two sales "make the company a pure play in a well-positioned discount store format," he said, calling the discount store division its "core competency."

Mandel expects same-store sales in the 4% range going forward with top-line growth close to 10% and profit growth of about 14%, due in part to the company's expansion plans. (Fulcrum Global Partners does not do investment banking.)