Given the significant pressures from e-commerce being faced by Target Corporation TGT in its general merchandise category, the company’s margin expansion and comp store sales growth targets could prove too optimistic.
Barclays’ Matthew McClintock downgraded the rating on Target from Overweight to Underweight, while lowering the price target from $90 to $70.
Optimistic Target?
McClintock expressed concern regarding the company’s longer term annual comp store sales target of 3 percent, saying that it appeared overly optimistic “in light that it’s been almost seven years since a recession, and the company failed to reach the high end of goals set just last year.”
Although the company reduced both advertising spend and capex during 2015, McClintock does not see this as an indication of future growth expectations, which seem contrary to Target’s “accelerating tone” with the Street.
Estimates Revised
The EPS estimates for 2016 and 2017 have been lowered from $5.40 to $5.25 and from $6.00 to $5.65, respectively.
McClintock explained that the revision was primarily due to lower sales expectations, along with decreased expectations for margin expansion.
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