Goldman Sachs Still Concerned About Target, Cuts Forecasts

Target Corporation TGT delivered a 1Q EPS beat. Goldman Sachs’ Matthew J. Fassler maintained a Neutral rating for the company, while reducing the price target from $85 to $75. The analyst commented that secular challenges were weighing on the company’s fundamentals.

All’s Not Well, Despite EPS Beat

Despite the EPS beat, there is cause for concern, analyst Matthew Fassler said. Target’s SSS of +1.2 percent missed the GS estimate of +1.5 percent and consensus expectation of +1.6 percent. The company indicated that daily and regional shopping patterns were more volatile towards the end of the quarter.

“Specific culprits included convenience-oriented “fill-in” trips; weather; and, disruption stemming from an April food reset,” Fassler wrote. Target has guided to 2Q SSS of down 2 percent to flat. The company noted that several competitors had large inventories, which could result in “an intensely promotional environment in the months ahead.” Target reiterated its full-year adj. EPS at $5.20-$5.40.

“We remain guarded on the underlying fundamentals of TGT’s business, based on secular challenges to the big box discount model. TGT is not a price leader, and broad assortment is no longer an effective, differentiating value proposition in the age of eCommerce,” the analyst mentioned.

The EPS estimates for 2Q16, FY16, FY17 and FY18 have been reduced from $1.33 to $1.23, from $5.30 to $5.20, from $5.65 to $5.55 and from $5.90 to $5.80, respectively. “The firm has the ability to manage expenses after big cuts over the past 18 months. But we think the market will only pay up for sales, not cost saves,” Fassler pointed out.