Why Citi Warned Investors to Stay Away from Target
Investors should stay away from Target amid concerns that sales may have peaked, Citi warned.
Analyst Paul Lejuez downgraded the retail giant to neutral from buy and cut his price target to $130 from $177.
Lejuez’s new target implies the stock will fall nearly 1% in the next year from where shares finished Thursday.
His previous target, by comparison, reflected the potential for a 34.8% rally.
“Despite the recent stock pressure, we cannot recommend investors buy the stock,” he said in a note Friday,
adding that “risk is more to the downside near term.”
Lejuez said 2023 is showing warning signs that sales have peaked and will likely fall more in what he called a “giveback” situation.
That would mark a turn after the retailer saw significant sales gains between 2020 and 2022, as the pandemic prompted a shift in spending from services to goods.
He noted the firm’s traffic tracker showed a 400 basis-point deceleration in the fourth quarter of May to close a difficult month,
followed by another tough week to start June. Together, Lejuez said the two weeks of data makes him cautious about the near term.
On top of this, he said it’s likely that Walmart — a Citi top pick — will continue to gain market share from Target and other retailers.
And he added that Target will struggle amid the difficult economic backdrop with around 55% of sales in the discretionary area.
The impact of the retailer’s discretionary skew became more apparent in the most recent earnings season and should pose an issue for at least the remainder of the year, the analyst said.
With 2023 poised to be a down sales year, Lejuez took his estimates down further and said it raises the question of just how far sales could fall.
“This is not a new concern,” he said. “It is the primary reason TGT has been our lowest ranked Buy-rated stock for some time, but we are concerned now more than ever, and we can no longer recommend that investors Buy TGT.”
— AsumeTech’s Michael Bloom contributed to this report.
Target, the US retail giant, was recently downgraded by Citi due to concerns that its sales may have peaked. Analyst Paul Lejuez cut his rating on the stock to neutral from buy and reduced his price target from $177 to $130. Lejuez warned that 2023 is showing warning signs that sales have peaked and will likely fall more in what he called a “giveback” situation. He also noted that Walmart is likely to continue gaining market share from Target and other retailers, adding to the pressure. In addition, Target’s sales are heavily skewed towards discretionary spending, which could pose an issue amid the difficult economic backdrop. As a result, Citi warned investors to stay away from Target.
