Here's Why Citi Downgraded Target (TGT) Stock

On Wednesday, shares of big box giant Target Corp. TGT closed the day down 0.77% to $50.52 per share after Citi Research lowered its rating to Neutral from Buy, citing risk to the company's food business from e-commerce behemoth Amazon AMZN.

Analyst Kate McShane also reduced her price target for the company to $56 from $63, representing a 10% gain from Tuesday's close.

"With Walmart [WMT] enhancing its e-comm portfolio with Jet.com and Bonobos over the past year through acquisitions that target millennials and AMZN's sizable entry into fresh/organic food w/ WFM acq., TGT's two main competitors have very quickly changed the game," analyst Kate McShane wrote in a note to clients Wednesday.

"This makes TGT's [revenue] growth prospects through organic or acq. growth tougher to achieve, absent any kind of game changing move," she continued.

McShane also noted that food has grown to encompass a sizable portion of Target's sales, accounting for approximately 22%. She believes that Target's "competitive advantage"—offering consumers a one-stop shop for everything from food, clothing and accessories, home goods, and personal care items—may soon disappear now that Amazon has bought out Whole Foods Market WFM.

"TGT's strategy of differentiating itself from AMZN and WMT through offering immediate access to food/HPC [household and personal care] and having a differentiated mix skewing to fresh/natural/organic has effectively been muted," she wrote.

And yes, Target shares were negatively affected last Friday after the Amazon-Whole Foods merger was announced; the stock fell 5%, and is down about 30% year-to-date.

However, Target and its management team is well aware of its struggles, both online and in brick-and-mortar, and the company is taking huge strides to turn itself around. From the rollout of 12 original over the next two years to growing its smaller-format store footprint, Target is determined to stay in the game.

TGT stock is a #2 (Buy) on the Zacks Rank, with a VGM score of ‘A.'

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