Global Courant
KeyBanc thinks a resumption of student loan payments in the third quarter will shrink Target’s margins. The company downgraded Target from overweight to sector weight on Sunday. Target’s stock is down nearly 11% since the start of the year and more than 19% in the past three months. The company’s latest quarterly results showed that Target struggled to grow sales year over year. Executives also indicated that sales would remain underwhelming for future quarters. TGT YTD mountain Target has been hit by concerns about a weakening consumer cautious about overspending. And analyst Bradley Thomas said a more cautious consumer more interested in budgeting coupled with macroeconomic headwinds will hamper Target’s long-term recovery, especially as student loan payments resume later this year. “Given the recent sell-off in stocks, we think the NT (near-term) downtrend may be contained, but we see the growing risk of student loan payments likely delaying the story of the margin recovery for at least another year. we are forced to downgrade.” said Tomas. Thomas added that the restatement of Target executives’ lukewarm expectations on the earnings call could be a strong sign that the company will struggle to recover, as will peers in the consumer space. “We believe downside risk may be greater for TGT, relative to competitors, due to the company’s decision to reiterate guidance, while sales and margin headwinds continue to mount for the wider retail environment,” he said. – CNBC’s Michael Bloom contributed to this report.
