Shares of Target (NYSE:TGT) fell over 1% in pre-open trading Wednesday after previously bullish analysts at Raymond James reversed course and downgraded the stock two notches on “concerning” near-term trends.
Analysts cut his rating on the retailing giant to Market Perform from Strong Buy, thereby skipping the Outperform rating in its rating system. The prior price target of $190 was also removed.
“We are downgrading TGT to a Market Perform rating from a Strong Buy ahead of Target’s F2Q23 earnings slated for August 16th,” analysts commented. “Our change in opinion reflects our belief that QTD sales & traffic trends have remained soft after taking a step down early in the quarter and suggest Target is losing topline momentum.”
Furthermore, analysts noted there have been additional signs pointing to a weakness in overall consumer discretionary spending, which holds particular significance for TGT's product mix. This has led to the emergence of a stronger possibility of a heightened promotional environment and a shift in the mix of consumables. As a result, Target's margin recovery story, which was a crucial aspect of their previous thesis, is likely to experience delays.
Additionally, there is continued pressure from increased shrinkage caused by organized crime, which is a significant unknown factor affecting estimates. The analysts said it is probable that there won't be any substantial improvement in this area for the remainder of FY23, resulting in approximately a 100 basis points headwind in F1Q.
The firm lowered Q2 EPS estimates to $1.15 from $1.45. Meanwhile, the firm’s comp sales estimate for the quarter was lowered to -5.0% from -2.5%.
“We believe sales trends slowed for TGT in late May and this pressure continued, potentially driving a comp sales miss versus consensus,” the analysts added.
FY2023 EPS estimates go to $7.15 from $7.85, FY 2024 to $8.05 from $10.40, and FY 2025 to $9.10 from $11.35.