Now is not the time to buy Target stock, this analyst says

Roth Capital Partners analyst Bill Kirk cut his price target on Target (Target Corporation Stock Quote, Chart, News, Analysts, Financials NYSE:TGT) to $90 from $122 in a May 22 note, citing disappointing Q1 results and a weaker outlook compared to peers like Walmart.

Target reported weaker-than-expected results, including a 3.8% drop in comparable sales (vs. -1.9% expected), $23.8-billion in net sales (vs. $24.2-billion expected), a 3.7% EBIT margin (vs. 4.3% expected), and adjusted EPS of $1.30 (vs. $1.61 expected). Two-year stacked comparable sales fell 7.5%—the worst quarter in Roth Capital’s model—marking a sharp slowdown from previous quarters. The results and outlook were notably weaker than Walmart’s, which showed steady sales and earnings growth.

“We continue to believe Target is poorly positioned: 1) against an unfavourable macro backdrop for discretionary assortment; 2) after years of underinvestment behind key initiatives (price and technology); and 3) to handle cost pressures associated with tariffs,” Kirk said. “We question Target’s proposition, with assortment less differentiated and relative value less compelling. 1Q revenue and margin contraction highlights their precarious position. Updated EPS guidance implies earnings growth that seems based on hope (and maybe cost compares). Reiterate our ‘Neutral’ and lower PT to $90 (from $122).”

After Q1, Target lowered its full-year 2025 guidance, now expecting net sales to decline by a low single-digit percentage (down from roughly 1% growth and compared to consensus of a 0.1% increase) and adjusted EPS of $7.00 to $9.00 (down from $8.80 to $9.90 and below the $8.34 consensus).

“The year has started below plan, but with more difficult prior year comparisons and increased tariff pressure, we do not see a reason for near-term improvement from a disappointing 1Q,” Kirk said. “Target indicated that they should be able to offset the majority of the tariff pressure. We expect Target will need to raise prices to partially offset input pressure, but faces a softening demand environment that will unlikely be receptive to increases.”

For Q2, Roth now expects Target to post a 3% drop in comparable sales (down from a 1% increase previously), $24.8-billion in net sales (down from $25.8-billion), a gross margin of 29.6% (down from 30.5%), and EPS of $2.20 (down from $2.75). For fiscal 2025, Roth is projecting comparable sales to fall 3.2% (previously expected to rise 0.9%), net sales of $103.8-billion (down from $108-billion), a gross margin of 28.2% (from 28.6%), and EPS of $7.85 (down from $9.34).

Kirk noted that Christina Hennington is leaving Target less than a year after taking on the role of Chief Strategy Officer in addition to Chief Growth Officer. The company did not mention her departure on the earnings call despite her long-standing presence on quarterly calls and at key events.

“Target announced the formation of a multi-year ‘Enterprise Acceleration Office,’” Kirk said. “However, new roles don’t create growth; investment spending does. Target has to spend, an earnings dilutive step they seem unwilling to take, to grow. In hindsight, the ~$10bn in 2021/early 2022 share repurchases, including an accelerated $2.75bn in 1Q’22, would have been better used to improve relative value and/or accelerate investments. At five-year lows in April, Target repurchased no shares. Over the last three years, Target has spent $5.5bn on supply chain improvements and IT/Other (1.7% of sales), including a -40% capex reduction in FY’24. Walmart U.S. spent $35.6bn on similar categories (2.2% of sales), including a 15% capex increase in FY’25.”

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