Is Target stock a buy? Roth Capital weighs in

Following the company’s second quarter results, Roth MKM Capital analyst Bill Kirk is seeing increased headwinds for retail giant Target (Target Corp Stock Quote, Chart, News, Analysts, Financials NYSE:TGT)

On August 16, Target reported its Q2, 2023 results. The company posted Adjusted EPS of $1.80 on revenue of $24.8-billion, a topline that was 4.9 per cent lower than the same period in 2022.

“Our second quarter financial results clearly demonstrate the agility of our team and the resilience of our business model, as we saw better-than-expected profitability in the face of softer-than-expected sales,” CEO Brian Cornell said. “With the benefit of a much-leaner inventory position than a year ago, the team was able to quickly respond to rapidly-changing topline trends throughout the second quarter, while continuing to focus on the guest experience. As we move into the Fall, the team is gearing up for the biggest seasons of the year, with a focus on continuing to serve our guests with newness throughout our assortment. At the same time, we continue to take a cautious approach to planning our business, and have therefore adjusted our financial guidance in anticipation of continued near-term challenges on the topline. This approach, along with the long-term investments we’re making in our business and strategy, position us to deliver sustainable, profitable growth in the years ahead.”

Kirk says he sees an unfavourable landscape for Target.

“Target and Walmart (WMT, Buy) results were so dramatically/directionally opposed that they look like they are operating in different industries (yes, mix is different, but categories are roughly the same),” the analyst said. “US Comp Store Sales: Walmart +6.3% (ex. Fuel) and Target -5.4%. E-Commerce Growth: Walmart +24% and Target -10.5%. We continue to prefer Walmart to Target with better opportunities over the near-term (consumer environment), medium-term (adspending opportunities), and long-term (ability to automate supply chain).”

In a research update to clients August 18, the analyst reiterated his “Neutral” rating and cut his one-year price target on Target stock from $156 to $140.

Kirk expects TGT will post EPS of $9.68-billion on revenue of $108.6-billion in fiscal 2024.

Target has a long-term opportunity to monetize a growing, captive digital audience, and showed strong results during the COVID-19 disruption,” he added. “That said, we still see 1) stagnant customer satisfaction in Yelp! scores and declining RedCard loyalty penetration (18.6% in 2Q, from 19.0% in 1Q’23, 20.3% in 1Q’22, 21.7% in 2020 and 23.6% in 2018 (partially offset by Circle additions); and 2) heavy overlap with Walmart should value-seeking increase (60% of locations share a zip-code). With potential consumer trade down and a shift away from discretionary goods, Target is facing the largest
macro headwinds.”