Target Corp. reports first-quarter results before market open Wednesday, with analysts expecting the retailer to see a slowdown in discretionary spending.
Raymond James reaffirmed its strong buy rating for Target
TGT,
in a note released Monday, but lowered the retailer’s price target to $190 from $195. The analyst firm also lowered its fiscal year 2023 EPS estimate to $7.85 from $8.45. “While we continue to believe Target’s long-term margin recovery opportunity is favorable, we are lowering our near-term estimates to reflect recent trends across retail, including further slowing of discretionary demand and the likelihood of a higher promotional environment and consumables mix,” wrote Raymond James analyst Bobby Griffin, in the note.
Analysts surveyed by FactSet are looking for adjusted earnings of $1.77 a share and revenue of $25.3 billion.
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Raymond James believes that Target can sustain its recent market share gains across multiple product categories due to its customer loyalty, strong partnerships with the likes of Apple Inc.
AAPL,
Ulta Beauty Inc.
ULTA,
and Levi Strauss & Co.
LEVI,
as well as growing private label penetration. “Nonetheless, multiple data points indicate discretionary consumer spending is slowing and Target’s product offering indexes more discretionary than certain areas of retail, warranting a more cautious outlook in our model,” Griffin wrote.
Target’s stock is up 1.1% Monday, outpacing the S&P 500 index’s
SPX,
gain of 0.02%. The retailer’s shares are up 7.2% this year, compared with the S&P 500 index’s gain of 7.4%.
In a note released Sunday Stifel reduced its Target price target to $175 from $190, citing a generally weaker discretionary spending environment. “Like other retailers, we think TGT comp will benefit from inflation-based pricing in staples categories (food/beverage/household/personal care) but weaker consumer spending will hurt discretionary categories, which account for about half of the company’s sales,” wrote Stifel analyst Mark Astrachan. Stifel has a hold rating for Target.
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In a note released last week, Jefferies said that it is “incrementally cautious” on Target. “According to our data, we are modeling TGT Q1 comps down 1% led by lower traffic,” wrote Jefferies analyst Corey Tarlowe. Analysts surveyed by FactSet expect Target’s same-store sales to increase 0.2% compared to the prior year.
Target’s margins also remain pressured, according to Tarlowe, who notes the stock nonetheless offers attractive risk-reward. “We believe that TGT is undervalued with upside ahead as fundamentals improve,” he wrote. Jefferies has a buy rating for Target.
Of 35 analysts surveyed by FactSet, 20 have an overweight or buy rating and 15 have a hold rating for Target.
