Global Courant
Investors should steer clear of Target amid concerns that sales may have peaked, Citi warned. Analyst Paul Lejuez downgraded the retail giant from buy to neutral and lowered its price target from $177 to $130. Lejuez’s new target means the stock will fall nearly 1% over the next year from where shares ended Thursday. By comparison, his previous target reflected the potential for a 34.8% rally. “Despite the recent pressure on the stock, we cannot advise investors to buy the stock,” he said in a note Friday, adding that “the near-term risk is more on the downside.” Lejuez said 2023 shows warning signs that sales have peaked and are likely to fall even more in what he called a “give back” situation. That would mark a turnaround after the retailer saw significant sales gains between 2020 and 2022 as the pandemic led to a shift in spending from services to goods. He noted that the company’s traffic tracker showed a 400 basis point slowdown in May’s fourth quarter to close out a rough month followed by another tough week to start June. Together, Lejuez said the two weeks of data make him cautious about the near term. In addition, he said it’s likely that Walmart — a top choice of Citi — will continue to gain market share from Target and other retailers. And he added that Target will struggle in the tough economic context with about 55% of sales in the discretionary area. The impact of retailer discretionary skew became more apparent in the most recent earnings season and should be a problem for at least the rest of the year, the analyst said. With 2023 poised to be a year of lower sales, Lejuez lowered his estimates further, saying it raises the question of how far sales could fall. “This is not a new concern,” he said. “It’s the main reason why TGT has been our lowest-ranked Buy-rated stock for some time, but we’re more concerned than ever and we can no longer advise investors to buy TGT.” – CNBC’s Michael Bloom contributed to this report.
