Author: Bernard Bia
Wells Fargo Securities has downgraded Target (TGT) to “market perform” from “outperform” and slashed its price target to $142 from $170, citing a “deteriorated outlook.”
In this article, we’ll break down Wells Fargo’s reasons behind the downgrade and take a closer look at what this could mean for Target shareholders.
What Led to the Downgrade?
Target has been downgraded by Wells Fargo, which says the company’s outlook has “deteriorated meaningfully.”
According to Wells Fargo analyst, Edward Kelly, TGT’s outlook has materially worsened and is no longer viewed as a strong investment for 2023.
He adds that the main concerns include the possibility of a prolonged period of comp deterioration in general merchandise. He also mentions an apex to negative traffic in the 4th quarter, a lack of clarity on the timing/amount of the margin rebound story, and the resurgence of pre-COVID model scaling issues.
In light of this, Kelly lowered the price objective from $170, from the original price to $142. He also changed the stock’s rating from overweight to equal weight. On one of its trades, Target’s stock moved down by 1.14%.
What is the implication of this?
It is a wise decision at the moment to adopt a more conservative and defensive approach. But the chances in retail consumer staples brands don’t look attractive to start the year, Kelly states.
He wrote suggesting selectivity, “we find ourselves navigating through a landscape of deteriorating sales momentum, a sophisticated margin setup filled with company-specific outs and takes, and varied levels of earning risks.”
How does the Downgrade Affect Investors and Analysts?
At this point, it’s clear that the downgrade from Wells Fargo has hurt Target’s stock prices, as they are now trading at a lower rate than they were prior to the announcement. But what does this mean for investors and analysts?
The likelihood that the corporation would complete the year with clean inventories as anticipated is decreasing given this backdrop. Given the consumer context, it appears more plausible that promotional levels could stay high, Kelly stated.
Although the retailer will likely resume operations at some point, it is uncertain if it makes sense to be concerned with so many unknown variables.
Although [the retailer] will likely resume operations at some point, we don’t believe it makes sense to be concerned with so many unknowable factors.
Putting all of this together, it’s evident that the downgrade has caused significant disruption in investor and analyst confidence in Target. How quickly they will be able to rebuild that trust remains to be seen.
Conclusion
So what does this mean for Target? Wells Fargo has allegedly downgraded the company’s stock rating from “outperform” to “market perform”, and cut its price target from $170 to $142. This is because Target’s weak traffic growth is likely to continue in the nearest future.
While Target may be facing some tough times, it’s not all bad news. The company posted earnings that beat Wall Street’s expectations, and its online sales continue to grow. In addition, Target has been investing in its stores and its supply chain, which should help it to compete in the future. All in all, it seems that Target is still doing well, but it may not be doing as well as some of its competitors.
