Target risks may persist, says TD Cowen By Investing.com

Target’s (NYSE:) price target was cut to $166 from $200 at TD Cowen on Tuesday, with analysts also lowering estimates for the company.

Analysts, who maintained an Outperform rating on the stock, told investors that risks for the retailer may persist as the consumer shift is driving downside.

“We are most concerned with sustained shifts away from goods to services and student loan headwinds which may drive incremental downside near term; meanwhile, stiff price competition, negative margin mix, shrink trends, and tougher food comparisons amidst disinflation are additional factors to monitor,” wrote analysts.

“We model downside risk to 4.7% & lower EPS below Street on lower comps given volatile traffic, consumer shifts to services, & food inflation,” they added.

Even so, TD Cowen said it understands the “investor appetite for rotating partly into controversial stocks” as valuations trail defensive leaders such as WMT, COST and LVMH.

In addition, the firm believes that given a healthier consumer and stronger discretionary spend in PCE, TGT “can return to 5-yr pre-pandemic avg comps of +2-3% (note, 1Q23’s 0.0%), avg gross margin of 28.9% (vs. 1Q23’s 26.3%) and avg op. margin of 6.2% (vs. 1Q23’s 5.2%).”