Target credit profile remains ’strong and stable’ says bond analyst

Published 03/07/2025, 01:56 PM
© Reuters.

Investing.com -- Despite concerns over tariffs and uncertain consumer behavior, Target’s credit profile remains strong and stable, according to Gimme Credit analyst Carol Levenson.

The corporate bond research firm said that following Target’s fourth-quarter earnings report, much attention has been focused on the impact of the Trump administration’s new tariffs, particularly the 25% tariff on Mexican produce. 

Target’s CEO warned that grocery prices will rise almost immediately, as the industry operates on low margins with little room to absorb cost increases. 

However, Levenson noted that Target is well-positioned to manage the new China tariffs, as the company has significantly diversified its apparel sourcing, reducing its reliance on China from 60% to just 17%.

Target’s stock fell on the report, with Levenson attributing the decline more to the company’s decision to stop providing quarterly guidance rather than tariff concerns. 

"Target has abandoned its practice of issuing quarterly guidance," she noted, citing uncertainty in consumer behavior and volatility in demand as key factors.

Despite these challenges, Target’s financial position is said to remain solid. 

“Target’s credit profile remains strong and stable, with considerable financial flexibility even after resuming modest share repurchases last year,” wrote the Gimme Credit analyst.

The company ended the year with $4.8 billion in cash and free cash flow of $2.4 billion, more than enough to cover $1 billion in share repurchases. Levenson expects continued financial discipline, with projections for lease-adjusted debt/EBITDAR holding steady at just over 2x.

Gimme Credit reiterates an “outperform” rating on Target’s 2034 notes at T+72, reflecting confidence in the retailer’s financial flexibility despite macroeconomic uncertainties.

 

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