Investing.com -- Citi downgraded Nordstrom (NYSE:JWN) to Sell from Neutral, warning that the department store retailer’s stock offers limited upside if its pending buyout closes but steep downside if it fails.
The firm also cut its target price for Nordstrom to $22 from $25, using a probability-weighted model that assumes a 70% likelihood of the deal closing and a 30% chance it falls apart.
Nordstrom’s shares have remained relatively stable since the Liberation Day tariff announcement, declining just 2%, compared to steeper drops at peers Kohl’s and Macy’s, which fell 22% and 14%, respectively.
The stock’s resilience is largely due to an ongoing acquisition deal in which the Nordstrom family and Mexican retailer Liverpool are set to buy the company for $24.25 per share.
With shares currently trading at $23.96, Citi sees just 1% upside if the transaction proceeds but as much as 30% downside if it falls apart.
The transaction may very well go through as planned, but given the circumstances, the probability is not 100%, Citi analysts say, noting that the financing requirements for the deal are relatively low at $450 million.
However, they emphasized that if the buyout does not materialize, Nordstrom’s stock could drop closer to $17.
Beyond deal uncertainty, Citi flagged concerns about Nordstrom’s business fundamentals.
While the company delivered strong fourth-quarter results, Citi believes first-quarter trends have weakened, mirroring challenges seen across the retail sector.
The brokerage also pointed to potential margin pressures from new tariffs, which could impact both sales and profitability, particularly given Nordstrom’s reliance on discretionary spending.
Citi lowered its fiscal 2025 earnings estimate to $1.11 per share from $2.25, reflecting lower expected sales and margin pressures.