Analysts Praise Target's Q3 Results, Gross Margins, But Have Cautious Tone For Future: Retailer 'Facing The Largest Macro Headwinds'

Retailer Target Corp TGT reported third-quarter financial results that included revenue and earnings per share coming in ahead of estimates from analysts.

Here's a look at what analysts are saying about the company after the report.

The Target Analysts: Bank of America analyst Robert F. Ohmes had a Buy rating and raised the price target from $135 to $160.

RBC Capital Markets analyst Steven Shemesh had an Outperform rating and raised the price target from $157 to $161.

Roth analyst Bill Kirk had a Neutral rating and price target of $140.

Stifel analyst Mark Astrachan had a Hold rating and raised the price target from $130 to $141.

Morgan Stanley analyst Simeon Gutman had an Equal-weight rating and a price target of $140.

Telsey analyst Joseph Feldman had an Outperform rating and raised the price target from $145 to $160.

Bank of America on Target: Strong merchandising initiatives by the retailer were a highlight for Ohmes.

"We continue to expect GM (gross margin) expansion in F25 as well as sequential traffic improvements driven by easing comparisons and the expected success of TGT's merchandising initiatives," Ohmes said.

The analyst said the execution by Target was impressive given the "challenging consumer backdrop" that includes higher interest rates and other macroeconomic items.

"We believe TGT's cautious stance on inventory could continue to support gross margin upside into 4Q and next year."

RBC Capital Markets on Target: The retailer over-delivered on several items like gross margins, leading to higher expectations going forward, Shemesh said.

"We get the sense that investor sentiment has begun to turn, but sequential top-line improvement will likely be needed for shares to leg up further," Shemesh said.

The analyst said gross margins were better than expected in the third quarter and full-year guidance for mid-single-digit comps implies raised estimates.

Roth on Target: Target reported negative comparable sales and a return to growth in 2024 is questionable for Kirk.

"Despite Target's assertion that the holiday season will be ‘solid,' it will compete with 2008 as the worst y/y holiday Q in company history (that we could find)," Kirk said.

The analyst said a return to comparable store sales growth in 2024 is "uncertain" due to competition and consumer habits.

"Longer-term, Target has an opportunity to monetize a growing, captive digital audience, and showed strong results during the COVID-19 disruption. Target gained share, and internal satisfaction scores are improving."

The analyst is concerned that Target's heavy overlap with Walmart Inc WMT in geographical regions could be worrisome if consumers become more value-seeking.

"With potential consumer trade-down and a shift away from discretionary goods, Target is facing the largest macro headwinds."

Stifel on Target: Lower comparable declines in discretionary categories were a notable takeaway from the third-quarter results for Astrachan.

The analyst said management comments suggest improvements to be gradual.

"Notably, the company said discretionary categories improved sequentially in F3Q23, with comp declines ranging from high-single-digit to low-double-digits, with sequential improvement most pronounced in Home and Apparel," Astrachan said.

Astrachan said Target's beauty category saw continued strength and is one of its fastest-growing categories thanks to its partnership with Ulta Beauty ULTA.

"In our view, strength in beauty is largely attributable to past investments that focused on in-store experience, and assortment (specifically the Ulta partnership)."

Morgan Stanley on Target: Trends for Target are "not getting worse," Gutman said.

"Continued negative comps aren't great in an absolute sense, and an inflection is likely needed for sustained stock outperformance into '24," Gutman said.

The analyst said lower promotional activity from the company could indicate that margins have bottomed.

Gutman said the bull case path to $170 per share is strengthened and the stock has an "interesting" risk/reward.

Telsey on Target: The third quarter results were better than expected and the margin recovery story was playing out for analyst Feldman.

"Consumer spending is expected to remain under pressure in the near term, resulting in softer discretionary sales and more last-minute purchases," Feldman said.

The analyst said lower inflation and competitive pricing could impact the average ticker size.

TGT Price Action: Target shares trade at $130 on Thursday afternoon versus a 52-week trading range of $102.93 to $181.70. Shares of Target are down 14% year-to-date in 2023.