How Long Will Target Take To Recapture Margins? 6 Analysts Deep Dive Into Q2 Print, Outlook

Zinger Key Points
  • Target’s sales were adversely impacted by softer discretionary spending and its Pride collection, one analyst says.
  • Lower price increases in essential categories like food and beverage also impacted the company’s Q2 results, another analyst notes.

Target Corp TGT reported a decline in quarterly sales after the Pride month (June) backlash, even as rival Walmart Inc WMT smashed second-quarter estimates.

Here are some key analyst takeaways from the earnings release, which came during an exciting earnings season.

Telsey Advisory Group On Target

Analyst Joseph Feldman maintained an Outperform rating while reducing the price target from $165 to $162.

Although Target delivered an earnings beat, driven by operating margin expansion, the comp was disappointing and reflected “softer spending on discretionary categories in a tough economic environment and the impact from issues related to its Pride assortment,” Feldman said in a note.

Target’s mixed quarterly results and weak outlook “were widely anticipated, given the consistent decline in Street estimates leading up to the print,” the analyst wrote. “While the softer spending on discretionary is likely to continue in 2H23 and pressure results, we believe these negative trends are largely priced in the stock at current levels,” he added.

Truist Securities On Target

Analyst Scot Ciccarelli reiterated a Hold rating while lowering the price target from $137 to $133.

Target’s second-quarter comps were impacted by “a (480bps) drop in traffic, with avg. ticket down (70bps),” Ciccarelli said.

He added Target’s weak trends were driven by several factors, including the backlash against the company’s Pride merchandising and marketing campaign, further softening in discretionary spending, and lower price increases in certain essential categories like food and beverage.

Stifel On Target

Analyst Mark Astrachan reaffirmed a Hold rating while slashing the price target from $160 to $145.

Target’s comp decline of 5% was “offset by solid cost management resulting in a less-bad-than-feared full-year comp and EPS guidance reduction,” Astrachan wrote in a note.

“Comp growth in July sequentially improved from June levels, and is consistent with mid-single-digit anticipated declines in F3Q23 and F4Q23,” reflecting ongoing weakness in discretionary categories, the analyst stated.

Check out other analyst stock ratings.

RBC Capital Markets On Target

Analyst Steven Shemesh maintained an Outperform rating and price target of $161.

“The green shoots of the print were gross margin expanding 550 bps y/y and July comp trends improving sequentially vs. June,” Shemesh said.

He added, “At these levels, we'd argue that the risk to reward skews positive, but the debate remains how long will margin recapture take?”

Morgan Stanley On Target

Analyst Simeon Gutman reiterated an Equal Weight rating and price target of $170.

“The resilient margin performance suggests TGT isn't getting more promotional despite top-line challenges and suggests a potential 'floor' on margins regardless of the sales environment,” Gutman wrote in a note.

“Given the magnitude of margin headwinds being lapped, there is healthy inherent earnings recapture that could occur even without the top-line getting better,” he added.

KeyBanc Capital Markets On Target

Analyst Bradley Thomas reaffirmed a Sector Weight rating on the stock.

“While 2Q EPS was better than expected, benefiting from strong margin discipline, management cut 2023 guidance given the softer cadence of comps, which are running down MSD,” Thomas said.

He added that there could be a continued risk from “the resumption of student loan payments in October, during the all-important holiday quarter, when discretionary products become even more important.”

TGT Price Action: Shares of Target had risen by 1.39% to $130.60 at the time of publication Thursday.

Photo: Shutterstock

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Posted In: Analyst ColorEarningsNewsPrice TargetReiterationAnalyst RatingsMoversTrading IdeasBradley ThomasExpert IdeasJoseph FeldmanKeyBanc Capital MarketsMark AstrachanMorgan StanleyRBC Capital MarketsScot CiccarellishoppingSimeon GutmanSteven ShemeshStifelTelsey Advisory GroupTruist Securities
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