uploads/2020/03/Target.jpg

Why Target Stock Fell despite BMO Capital’s Upgrade

By

Updated

On Wednesday, BMO Capital upgraded Target (NYSE:TGT) from a “market perform” to “outperform” rating. The firm also raised its 12-month target price to $125 from $115. The new target price represents a return potential of 17.7% from the April 15 closing price.

As reported by TheStreet, BMO Capital analysts analyzed 15 of Target’s competitors in the apparel and home retail space. The analysis indicated that most of the companies showed weaker trends. The companies planned to close stores even before the nationwide shutdown due to the COVID-19 outbreak. Although the Trump administration announced that it will support struggling businesses with stimulus packages, BMO analysts think that the stimulus package could increase companies’ debt levels. The analysts said that increased debt could hamper companies’ ability to invest in growth initiatives like innovation and digital capabilities. More debt could also impact companies enhancing their in-store experiences. BMO analysts think that Target could capture market share from those businesses over time.

Other analysts’ recommendations for Target

Since Target reported its fourth-quarter earnings on March 3, many analysts have cut their target prices. Deutsche Bank, JPMorgan Chase, Telsey Advisory Group, UBS, Stifel, and Instinet lowered their target prices. The price cuts lowered analysts’ consensus target price from $128.71 in the last month to $124.39. The new target price represents a 12-month return potential of 17.1% from the closing price on April 15. Despite the price cuts, analysts are still bullish on the stock. Among the 28 analysts, 60.7% recommend a “buy,” while 39.3% recommend a “hold.” None of the analysts recommend a “sell.”

Analysts’ expectations

On March 25, Target withdrew its guidance for the first quarter of fiscal 2020 and fiscal 2020 due to uncertainty amid the COVID-19 outbreak. The company also suspended its share repurchase program. Read Target Withdraws Guidance, Scales Back Growth Plans to learn more. Meanwhile, analysts expect the company to report revenue of $8.18 billion in fiscal 2020. The amount represents a rise of 4.8% from $7.81 billion in fiscal 2019. For the same period, analysts expect the company’s EPS to rise by 3.5% to $6.62.

Stock performance

Despite BMO Capital’s upgrade, Target stock fell 2.0% and closed at $106.24 on Wednesday. CNBC reported that US retail sales in March fell by 8.7%, while industrial production and manufacturing fell by 5.4% and 6.3%, respectively. Weak economic data dragged the company’s stock down.

YTD, Target has lost 17.1% of its stock value as of April 15. The stock fell due to withdrawing the fiscal 2020 guidance and weakness in the broader equity market. Meanwhile, the company has underperformed its peers this year. During the same period, Walmart (NYSE:WMT), Kroger (NYSE:KR), and Costco (NASDAQ:COST) have returned 8.3%, 10.5%, and 5.6%, respectively.

More From Market Realist