By Senad Karaahmetovic
BofA analyst Robert Ohmes cut the rating on Target (NYSE:TGT) to Neutral from Buy with a $165.00 per share from $235.00.
“We believe valuation pressure from discretionary category risks will likely offset strong long-term positioning,” Ohmes said in a client note.
The analyst said Target’s business update was surprising as it cut the outlook just 3 weeks after reporting earnings. This prompted Ohmes to reduce the GM forecast for the full year to 24.9% from 26.1% and the F23E EPS estimate to $8.50 from $10.70.
The company is suffering from excess inventories as well as higher costs from fuel and staff.
“We believe the uncertainty in 2H margins given sales mix could continue to be unfavorable as competitors may also be clearing merchandise, and this could restrain TGT’s valuation given the current low valuations of many leading discretionary category retailers and TGT’s higher relative exposure to those categories,” Ohmes added.
Still, the analyst remains positive about TGT in the long term as the company continues to see robust traffic trends and sees strength in high frequency categories.
Target shares are down 1.5% today.