Target stock has been in the crosshairs this year, and one analyst is bracing for more bad news when the big-box retailer reports earnings next month.
On Wednesday, Raymond James analyst Bobby Griffin cut his rating on Target (ticker: TGT) by two notches, to Market Perform from Strong Buy. His double downgrade means bulls no longer have the majority, with half of analysts sidelined on the shares.
In midday trading, the stock was up 0.4%, to $134.15; it is down 14% in the past three months. The broader market was mixed ahead of the Federal Reserve’s decision on interest rates.
Griffin also removed his $199 price target and lowered his earnings per-share estimate for the fiscal second quarter to $1.15 from $1.45, and his full-year estimate to $71.5 from $7.85. Consensus calls for $1.57 and $8.16, respectively.
Target is slated to release its fiscal second-quarter numbers on Aug. 16.
Griffin gave three main reasons for his increased caution. First, he believes sales and traffic have remained weak, and trends “suggest Target is losing topline momentum.”
Secondly, he is concerned that Target’s long-awaited margin recovery may now be even further in the future: Lackluster discretionary sales, a key category, could force the company to once again offer deeper discounts to move merchandise.
Finally, Griffin thinks the continuing problem of organized crime leading a rise in shoplifting remains a “wildcard.” During first-quarter reporting season, Target warned that “violent incidents” were increasing, and could lead to a half-billion-dollar hit to profitability for the year. Many other retailers noted theft was also a problem.
Ultimately, Griffin believes Target’s long-term appeal remains, but has “lower confidence in near-term sales trends and profit recovery.” He simply doesn’t think the shares are a Buy, even as they hover not far off their 52-week lows.
Griffin’s rating cut means that 17 of the 35 analysts tracked by
FactSet
are bullish on Target, down from two-thirds a year ago. The average analyst price target has also come down to $171, although that is still nearly 30% above where shares sit now.
Target received two other downgrades last month, from
Citigroup
and
JPMorgan.
Those firms are also concerned about the company’s sales trajectory.
Write to Teresa Rivas at [email protected]
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