Cowen Downgrades Target (TGT) to Market Perform
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Cowen downgraded Target (NYSE: TGT) from Outperform to Market Perform with a price target of $68.00 (from $75.00), citing lack conviction the company can reignite comps growth, recent changes in food/pharmacy not resonating with guests and a lack of upside drivers.
Analyst Oliver Chen commented, "The "fill-in" trip weakness that began in 1Q coupled with the significant traffic decline of -2.2% y/y seen in 2Q (1st time traffic was negative since 3Q14) demonstrate to us that TGT is losing share to the likes of Amazon (NASDAQ: AMZN) and Wal-Mart (NYSE: WMT). We believe TGT has solid market share in the bigger "stock-up" trips for customers, but the increasing price competition from WMT and the convenience of Amazon prime will make the recent "fill-in" trip weakness for TGT persist. The data in our monthly internet retail tracker led by John Blackledge (here) has consistently shown that AMZN is seeing explosive growth in several categories most notably grocery and consumables, which accounts for 45-50% of TGT's business and are likely the categories feeling pressure from the "fill-in" trip dynamics. In our view, WMT can use its scale to compete on price to regain or maintain market share vs. AMZN (as evidenced by WMT's y/y growth in the month of July below), but TGT cannot compete as easily."
The analyst also notes changes in its food presentation and product offering will take longer than originally expected to resonate with guests, and the pharmacy re-brand to CVS following the completion of the sale resulted in some disruption to traffic.
Simply out, TGT does not fall into the trade to play stocks with easier comparisons in the 2H16, the analyst stated.
Shares of Target closed at $69.00 yesterday.
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