Target stock: Analyst duel on this retailer's outlook ahead of its Q3
Analysts duel on this retailer’s outlook ahead of quarterly earnings, as Bank of America reiterates its bullish stance on the stock's value-focused strategy, while Citi raises concerns over headwinds like slowing sales, weather-impacted seasonal demand.
Target Corp, which launched its holiday shopping season earlier than usual with discounts on toys, household goods, and more, will report its third-quarter earnings on Wednesday.
BofA, which maintained its "buy" rating and have a price target of $195 for Target, cited the company’s robust holiday promotions, and improving gross margins. Extended shopping hours and new private-label brand launches could help attract holiday shoppers, BofA noted.
“We believe TGT’s focus on value positions it well for share gains,” said BofA analyst citing price cuts on more than 10,000 items this year, continued innovation with new owned brand launches focused on value & entry level price points, and “enhanced” holiday promotions.
BofA also projected a continued gross margin expansion, driven by vendor cost improvements, a recovery in shrink, and efficiency initiatives like sortation centres. Digital sales growth is expected to outpace in-store sales, a trend consistent with the past three quarters, which could support margins despite rising digital fulfillment costs.
In contrast, Citi expects third-quarter comps to grow 1%, below the 1.6% consensus estimate, citing a slowness in store foot traffic and online visits. Unseasonably warm weather also dampened demand for seasonal merchandise, BofA noted, while broader economic headwinds could weigh on consumer spending.
Citi, cautious about investor sentiment, highlighting that Target remains one of the "more controversial" names in its coverage, with short interest rising to 3% of float since the company’s second-quarter earnings call.
“Sentiment skews more negative,” Citi analysts wrote, even when stock is down roughly 7% since it reported its second quarter result.
Both BofA and Citi noted Target’s sales struggles in the third quarter, on challenging macroeconomic conditions and competitive pressures. However, the upcoming points to holiday season that could be the tailwind to the stock.
While Citi is cautious about the retailer’s ability to sustain momentum in discretionary categories like apparel and home goods, BofA expects holiday promotions and extended hours to drive traffic and market share.
Separately, rival Walmart raised its annual sales and profit outlook for the third time this year on Tuesday as the retail giant capitalised from shoppers purchasing not just groceries but higher-margin discretionary goods, suggesting it may be gaining market share ahead of the holiday rush.