Target's EPS Estimates Still 'Too High'

BMO said the earnings estimates of Target Corporation TGT still "looks too high" amid gross margin pressures. The retailer has been hurt by broad weakening consumer demand and below planned sales and margin pressures.

"While we believe Target's leadership team is generally executing well against its long-term strategic plan, we believe 2016 expectations could prove overly optimistic given industry trends and related potential margin pressure," analyst Wayne Hood wrote in a note.

As such, Hood's 2016 analytical EPS of $4.94 remains below the consensus estimate of $5.13 and guidance of $5.20-$5.40.

For the second quarter, Target sees EPS of $1.00-$1.20, reflecting the uncertain environment, and Hood sees downside risk of $0.05 to BMO and the consensus estimate of $1.13 on "what could prove to be more pressure on the gross margin rate rather than below planned sales."

Target, which reported first quarter same-store sales growth of 1.2 percent, expects same-store sales to be flat to down 2 percent and the EBTDA margin rate to be pressured 40 bps at mid-point from clearing unplanned inventory (+4 percent) and from weak sales that pressure fixed costs. BMO expects same-store sales growth of -1 percent.

Hood said his same-store sales concerns were lessened when assessing the company's Deal Days of Summer promotions where each day from June 26 to July 4 guests would find daily hot deals within seasonally relevant categories.

Hood maintained his Market Perform rating, and price target of $76. Shares closed Tuesday's regular trading at $69.74.