Target Outlook Has ‘Deteriorated Meaningfully” – Analyst

Target (NYSE: TGT) shares have declined over 1% premarket Wednesday after Wells Fargo downgraded the stock to Equal Weight from Overweight in a research note.

Analyst Edward Kelly also cut the firm's price target on the stock to $142 from $170.

Kelly told investors that Target's outlook has “deteriorated meaningfully,” and he no longer sees it as an attractive investment into an uncertain 2023.

The analyst's concerns include the possibility of a sustained period of comp weakness in general merchandise, an inflection to negative traffic in the fourth quarter, a lack of visibility on its margin recovery, and the return of pre-Covid model scalability concerns.

In addition, the analyst sees the potential for $8 to $9 in earnings per share in 2023 and a limited upside in the stock, even though there are low expectations.

Wells Fargo's negative sentiment on Target is shared by Gordon Haskett, which downgraded Target to Hold from Buy in December, with analyst Chuck Grom writing that Target's traffic levels have “meaningfully eroded over the past two months after a long stretch of very strong results.”

Grom, who assigned Target a $132 price target, added that with 75% of Target's mix more discretionary in nature, it will continue to face headwinds for much of 2023, while he also continues to see more evidence of middle-income trade down across the retail space.

The analyst is “incrementally more concerned” that Target could see more give back on its “massive market share gains since 2020.”