Target Heads For An Earnings Reset In Q2 Hurt By Challenges In Discretionary Categories Amid Pride-Related Impacts

Oppenheimer analyst Rupesh Parikh reiterated an Outperform rating on Target Corporation TGT, lowering the price target to $165 from $190.

The company is expected to report its quarterly results on August 16, 2023. Near term, the analyst expects the topline pressures to persist for at least a few more quarters.

The analyst cautions of an earnings reset in the quarter to be reported steered by Pride-related impacts and continued pressures on discretionary categories. 

For the second quarter to be reported, Parikh expects net sales to be $24.91 billion, with EPS of $1.15. 

Parikh is now projecting EPS of $7.00 in FY23, down from $7.90 previously and below the guidance of $7.75-8.75. 

The lowered guidance is owing to ongoing challenges in discretionary categories and potential headwinds related to the student loan payment restart. 

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

The analyst now expects an eventual rebound to $10+ in earnings power to take even longer than envisioned.

With expectations of potential negative impacts on consumer spending later this year related to student loans, investors are likely to remain downbeat towards TGT’s near-term prospects, Parikh flags. 

Amidst these factors, the analyst has less confidence in the share price reaction to the print.

As a result, the analyst would be positioned to take advantage of any weakness vs. expecting a positive catalyst, he adds.

On the positive side, Parikh remains bullish for long-term players, anticipating a multiyear margin recovery.

The analyst believes that TGT is well positioned to benefit from an eventual rebound in discretionary categories as goods demand normalizes.

Price Action: TGT shares are trading lower by 1.7% to $134.09 on the last check Tuesday.