Target Corporation TGT announced several initiatives on Tuesday to right-size its inventory, including order cancellations and slashing prices. Management also lowered their guidance for the second-quarter operating margin rate to around 2%, from their earlier expectation of meeting the first-quarter’s 5.3%.
BofA Securities On Target: Analyst Robert Ohmes downgraded the rating for Target from Buy to Neutral, while reducing the price target from $235 to $165.
Although Target surprised markets by lowering its gross margin outlook for the second quarter and the second half of the year, the company has left its sales guidance unchanged, Ohmes said in the downgrade note.
The analyst slashed the EPS estimates for fiscal 2023 and 2024 from $10.70 per share to $8.50 per share and from $13.45 per share to $10.80 per share, respectively. He added that the “valuation pressure from discretionary category risks will likely offset strong long-term positioning.”
RBC Capital Markets On Target: Analyst Steven Shemesh maintained an Outperform rating, while lowering the price target from $239 to $231.
While the revised guidance is “painful to digest,” this is a “rip the bandaid off type event that will allow the company to operate more efficiently in 2H and beyond,” Shemesh said in a note to clients. “We expect investors to tread with caution near-term, but believe this decision ultimately makes the name more investable,” he added.
Telsey Advisory Group On Target: Analyst Joseph Feldman reiterated an Outperform rating, while cutting the price target to $200.
“This outlook reflects soft spending on discretionary products and high inventory across the industry…and elevated supply chain costs, including fuel prices,” Feldman said. “We are disappointed by Target's lower profit outlook in 2022, but believe this is the right step to resolve the inventory issue and return to a more normalized margin profile in 2023,” he added.
“While the stock may not warrant its average valuation, given the recent pressure and guidance cuts, it seems oversold. We also understand it may trade sideways in the near term until the inventory situation is cleared up,” the Telsey Advisory Group analyst further wrote.
Raymond James On Target: Analyst Bobby Griffin maintained a Strong Buy rating, while reducing the price target from $205 to $190.
Target’s latest update “signals a shift in the retail landscape towards how things were pre-COVID,” including lower margins across retail, more competitive product pricing and discretionary inventory being more prone to markdowns, Griffin said in a note.
The Raymond James analyst further mentioned that the trends were “not just Target specific” and that the recently announced moves constituted “the right long-term strategy.” He added that the company should be able to “sustain its recent market share gains across multiple product categories due to its customer loyalty, strong brand partnerships, and growing private label penetration.”
Morgan Stanley On Target: Analyst Simeon Gutman reiterated an Equal-Weight rating, while cutting the price target from $255 to $190.
“Our sense is this second cut was deep enough to de-risk Q2, though perhaps not the full year,” Gutman warned in a note to clients.
He further said that the lowered guidance was “more TGT specific than it looks” because of the company’s “diverse exposure to high profit discretionary categories, supply chain inefficiencies (perhaps exacerbated by TGT's store-based fulfillment model with less upstream capacity),and inventory mis-planning.”
TGT Price Action: Shares of Target had risen by 0.81% to $157.24 at the time of publication Wednesday.
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