Bernstein cuts Target stock price target to $80 from $82

On Thursday, Bernstein analysts led by Zhihan Ma adjusted the price target for Target Corporation (NYSE:TGT) shares, reducing it to $80 from the previous target of $82. Despite the adjustment, the firm maintained its Underperform rating for the retailer. According to InvestingPro data, Target’s stock has declined over 32% in the past year, though analysis suggests the stock is currently undervalued. With a P/E ratio of 10.78x and an impressive 54-year streak of dividend increases, the company presents an interesting value proposition despite near-term challenges.

The reevaluation of Target’s financial prospects comes in the wake of a challenging first quarter, which saw the company struggle to attract in-store shoppers. Bernstein’s analysis suggests that the retailer could experience further declines, especially if e-commerce margins continue to be diluted by the growth of less profitable same-day delivery services. Additionally, potential impacts from tariffs on gross margins and sales deleverage could further pressure EBIT margins. The company maintains a gross profit margin of 28.21% and generates substantial free cash flow, with InvestingPro analysis indicating strong cash flow coverage of interest payments.

Bernstein’s stance on Target has been cautious due to the difficult balance between sales growth and profit margins. In times of difficulty, such as those observed in the first quarter, Target has historically prioritized top-line growth over margins. This strategy, particularly the focus on expanding same-day delivery, could exacerbate the gap in e-commerce margins. Moreover, the introduction of 10,000 low-priced stock-keeping units (SKUs) could complicate operations amidst existing inventory management challenges.

To achieve a turnaround in sales growth, Target is expected to continue investing in competitive pricing and e-commerce expansion, both of which are likely to pose ongoing challenges to profit margins. Although a management change scheduled for the fall offers a potential upside, Bernstein analysts express skepticism about the new leadership’s ability to address the structural issues facing the company.

In other recent news, Target Corporation’s first-quarter earnings report revealed a decrease in comparable sales by 3.8%, with earnings per share dropping to $1.30 from $2.03 in the previous year. The company has revised its full-year earnings per share guidance to a range of $7.00 to $9.00, down from the earlier projection of $8.80 to $9.80. Analysts have responded with varied adjustments to their price targets for Target. JPMorgan raised its price target to $109, maintaining a Neutral rating, while DA Davidson lowered its target to $125 but upheld a Buy rating. CFRA slightly decreased its target to $99, retaining a Hold rating, and BMO Capital Markets reduced its target to $95, keeping a Market Perform rating. BofA Securities downgraded Target’s stock rating from Buy to Neutral, slashing the price target to $105. Analysts expressed concerns about Target’s declining sales, increased inventory levels, and potential margin pressures. Despite these challenges, some analysts see potential for improvement in the second half of the year, contingent on economic conditions and inventory management.

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