On Friday, Citi downgraded Target stock from buy to neutral, after an analysis by the bank showed a tough competitive terrain for the retail giant accentuated by slowing traffic through its stores.
Citi analyst Paul Lejuez said in a note to clients, “After significant sales gains in 2020-2022, we believe 2023 is showing that sales have peaked and are likely to fall further, creating a ‘giveback’ situation.”
He added that there had been a “noteworthy deceleration” in traffic through Target’s stores over the previous two weeks.
After ending Thursday’s session down 0.4%, Target fell another 3.26% on Friday to close at $126.99.
Lejuez wrote, “Now that 2023 is shaping up as a down sales year (and we are taking our sales [estimates] down further), it raises the question of how far sales might fall,” especially, he added, given that for some time, Target has been Citi’s lowest ranking buy-rated stock. He added, “We are concerned now more than ever, and we can no longer recommend that investors Buy [Target].”
Citi also noted the company faces fierce competition from rival Walmart Inc. Lejuez wrote, “Considering the competitive landscape, we believe [Walmart] is likely to continue gaining market share (including from [Target]), and [Target’s] high exposure to discretionary sales (55% of sales) will not serve them well in the current macro backdrop.”
He added, “We believe the macro backdrop is unfavorable for [Target],” and that there is likely to be pressure on discretionary sales for at least the rest of 2023.
The note did not address the backlash against Target’s LGBTQ Pride collection in recent weeks. The company endured its longest losing streak in 23 years – 11 days – last week as the backlash against the collection played out.
The company was also downgraded by JPMorgan from overweight to neutral last week, as the bank cited the effect of “consumer pressures and recent company controversies” related to the company.
Gravy Analytics, a location-intelligence company however, claimed its data showed that Target stores were seeing increased foot traffic last month.
Target’s stock was downgraded to sector weight from overweight last week by KeyBanc Capital Markets due to pressures on consumer spending, particularly the impact of the repayment of student loans.
In a survey by FactSet of 35 analysts, 19 rate Target overweight, or a buy, while 16 placed a hold rating on the stock.