Target Analysts Take Aim At Stock's Future: What They're Saying After Q1 Earnings

Zinger Key Points
  • All four analysts shared a similar sentiment.
  • Target shares fell more than 25% after earnings.

Target Corp TGT reported worse-than-expected earnings results on Wednesday, which led several analysts to lower price targets on the stock.

Off Target: Target said first-quarter revenue increased 4% year-over-year to $25.17 billion, which beat the $24.37-billion estimate, according to data from Benzinga Pro

The retailer reported quarterly earnings of $2.19 per share, which came in well below the estimate of $3.07 per share. 

The operating income margin rate also came in well below expectations at 5.3% in the first quarter compared with 9.8% in 2021. The company said it was primarily driven by gross margin pressure reflecting actions to reduce excess inventory as well as higher freight and transportation costs.

"Throughout the quarter, we faced unexpectedly high costs, driven by a number of factors, resulting in profitability that came in well below our expectations, and well below where we expect to operate over time," said Brian Cornell, chairman and CEO of Target.

See Also: Target Shares Plunge On Q1 Bottom-Line Miss, Margin Pressure

Analysts Take Aim: Telsey Advisory Group analyst Joseph Feldman maintained an Outperform rating on Target and lowered the price target from $305 to $200 following the company's quarterly results. The Telsey analyst said the selloff in Target shares is "overdone," citing a price-to-earnings multiple around 14 times. 

Target has traded between 18 and 18.5 times earnings over the last few years, Feldmen noted. The analyst expects Target to restore margins closer to historical levels in the second half of the year and into 2023. 

RBC Capital analyst Steven Shemesh went as far as saying downside is "fairly limited" from current levels after running a recession scenario analysis using 2008-2009 models. 

The RBC analyst maintained Target with an Outperform rating and lowered the price target from $294 to $239. Shemesh's price target assumes Target will be trading around 18 times earnings in 2023, similar to Telsey's sentiment.

Morgan Stanley analysts maintained Target with an Equal-Weight rating and lowered the price target to $255 based on a 16.5 times earnings multiple.

Morgan Stanley said the margin issues are reminiscent of what took place in 2020. In the first quarter of 2020, gross margins contracted as COVID-19 impacted markets.

"These markdowns proved to be overly conservative, and TGT regained margin through the balance of the year," the firm said.

Raymond James analyst Bobby Griffin lowered the price target from $275 to $205 on gross margin concerns as well. He maintained Target with a Strong Buy rating, as the analyst said "the current gross profit pressures are largely transitory and can be fixed."

All four analysts shared a similar sentiment. Each analyst noted that Target's report may be the result of larger macro factors, citing similarities to Walmart Inc's WMT earnings results.

Related Link: Jim Cramer Apologizes To Walmart After Target Stock Tanks On Earnings

TGT Price Action: Target shares fell more than 25% after earnings. The stock was down another 5.82% at $152.21 in Thursday's session. 

Photo: courtesy of Target.

Posted In: Morgan StanleyRaymond JamesRBC CapitalTelsey Advisory GroupAnalyst ColorEarningsNewsPrice TargetReiterationAnalyst Ratings