Is Target's Revenue Growth Sustainable? Analyst Lowers FY24 Earnings Estimates

RBC Capital Markets analyst Steven Shemesh reiterated an Outperform rating on the shares of Target Corporation TGT, lowering the price target to $191 from $198.
Target recently reported first-quarter FY23 sales growth of 0.6% year-on-year to $25.32 billion, beating the analyst consensus estimate of $25.29 billion.
Following the Street-beating performance, the analyst sees the quarter as a net positive but doesn't expect it to change investors' view on the name much (if at all).
Based on the above, the analyst cut FY24 earnings estimates to $10.61 from $11.
In Q1, Comparable stores (comps) sales grew 0.7%, offset by a decline in comparable digital sales.
The analyst remains cautious as the monthly comps show no evidence of rebounding, with 2Q guidance calling for low single-digit declines.
The analyst expects shrink to be a meaningful headwind, reducing this year's profitability by more than $500 million. While there are many potential sources of inventory shrink, theft, and organized retail crime are increasingly important drivers of the issue.
The analyst assumes a 0.9% revenue CAGR from FY22 to FY24 and 4.8% and 5.9% operating margins in FY23 and FY24, respectively.
Also Read: Target Finds A Direction Forward: 3 Analysts Review Q1 Print, 'Margin Recovery Story'
Price Action: TGT shares are trading lower by 4.6% at $153.55 on the last check Thursday.

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