As the highly-anticipated earnings report for big-box retailer Target (ticker: TGT) approaches, one analyst is predicting more trouble on the horizon. Raymond James analyst Bobby Griffin recently downgraded Target’s rating by two notches, from Strong Buy to Market Perform. This move has resulted in a shift in sentiment, as now half of the analysts are on the sidelines regarding the stock.
Despite this downgrade, Target’s stock saw a modest 0.4% increase, reaching $134.15 during midday trading. However, over the past three months, the stock has experienced a decline of 14%. The broader market remained mixed, awaiting the Federal Reserve’s decision on interest rates.
Griffin has not only downgraded Target’s rating but also adjusted his price target and earnings per share (EPS) estimates. He eliminated the $199 price target and revised his EPS estimate for the fiscal second quarter to $1.15 from $1.45. Additionally, he lowered his full-year estimate to $71.5 from $7.85. In contrast, consensus expectations are currently at $1.57 EPS for the second quarter and $8.16 for the full year.
Target is scheduled to reveal its fiscal second-quarter numbers on Aug. 16.
Griffin elaborated on three key reasons behind his growing caution. First and foremost, he expressed concerns regarding weak sales and traffic trends, suggesting that Target is experiencing a decline in overall momentum.
Despite these challenges, Target is entering a critical period that will undoubtedly shed light on its performance and future prospects within the market.
Target’s Margin Recovery Delayed
Target’s margin recovery may be further delayed due to lackluster discretionary sales, which could result in the need for deeper discounts to move merchandise. The continuing problem of organized crime leading to a rise in shoplifting is also a concern. Target has warned about increasing “violent incidents” during the first quarter, which could have a significant impact on profitability for the year. This issue of theft is not unique to Target and has been noted by many other retailers.
Lower Confidence in Near-Term Sales Trends
Despite Target’s long-term appeal, there is lower confidence in near-term sales trends and profit recovery. One analyst, Griffin, does not consider the shares to be a Buy, even though they are currently not far from their 52-week lows. Griffin’s rating cut means that out of the 35 analysts tracked by FactSet, only 17 are bullish on Target, a decrease from two-thirds a year ago.
Analysts and Their Concerns
Target received downgrades from Citigroup and JPMorgan last month, as these firms share concerns about the company’s sales trajectory. The average analyst price target has also decreased to $171, although this still represents a nearly 30% increase compared to the current share price.
