2023 is not the year to own Target stock: Wells Fargo

on Jan 4, 2023
  • Wells Fargo analyst downgrades Target Corporation to "equal weight".
  • Edward Kelly doesn't see it a great pick for disinflationary environment.
  • Target stock has lost roughly 15% in less than two months.

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Target Corporation (NYSE: TGT) significantly underperformed the broader market in 2022. But the new year, as per a Wells Fargo analyst, is unlikely to be a great one for it either.

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Target stock could lose as much as 8.0%

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On Wednesday, Edward Kelly downgraded the retail behemoth to “equal weight” and said shares could sink to $142. That represents about an 8.0% downside from here.

The analyst is dovish primarily because he doesn’t see the Target stock as a great pick for the coming disinflationary environment.

Our concerns include potential for a sustained period of comp weakness, an inflection to negative traffic in Q4, a lack of visibility on timing/magnitude of margin recovery story, and the return of pre-COVID model scalability concerns.

In comparison, Kelly dubs rival Walmart Inc (NYSE: WMT) a better bet for a weaker or low-income consumer in 2023.

Target could see a hit to sales momentum

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According to Statista, there’s a 38% probability currently that the U.S. economy will slide into a recession by November of 2023.

If that indeed plays out, the general merchandise companies, including Target Corporation, will be squeezed for sales momentum. Therefore, Kelly wrote:

We see a complicated and rather uninspiring investment backdrop for retail group as we kick off 2023. Target’s outlook has deteriorated meaningfully and we no longer see it as an attractive investment into an uncertain 2023.

In November, the Minneapolis-headquartered department store chain reported a disappointing third quarter and issued weak guidance for the future. Target stock is down 15% versus mid-November at writing.

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