The Ratings Game

Target’s stock downgraded at Citi, which cites slowing traffic and ‘tough competitive positioning’

There has been ‘noteworthy deceleration’ in Target’s store traffic over the past two weeks, Citi analyst says

Target faces particularly stiff competition from Walmart, according to Citi.

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Target Corp.’s stock was downgraded to neutral from buy Friday by Citi, which cited slowing traffic and a tough competitive landscape for the retail giant.

“After significant sales gains in 2020-2022, we believe 2023 is showing that sales have peaked and are likely to fall further, creating a ‘giveback’ situation,” wrote Citi analyst Paul Lejuez in a note released Friday.

The analyst also cited a “noteworthy deceleration” in Target’s TGT, -3.26% store traffic over the past two weeks.

Related: Target’s stock, on its longest losing streak in 23 years, downgraded at JPMorgan

Target Corp.’s stock fell 1.4% in premarket trades Friday, after ending Thursday’s session down 0.4%.

“Now that 2023 is shaping up as a down sales year (and we are taking our sales [estimates] down further), it raises the question of how far sales might fall,” Lejuez wrote, adding that Target has been Citi’s lowest-ranked buy-rated stock for some time. “We are concerned now more than ever, and we can no longer recommend that investors Buy [Target],” he added.

The retail giant also faces stiff competition from rival Walmart Inc. WMT, +0.60%, according to Citi. “Considering the competitive landscape, we believe [Walmart] is likely to continue gaining market share (including from [Target]), and [Target’s] high exposure to discretionary sales (55% of sales) will not serve them well in the current macro backdrop,” Lejuez wrote.

Related: Target’s stock downgraded by KeyBanc Capital — but it’s not because of its LGBTQ+ merchandise

“We believe the macro backdrop is unfavorable for [Target],” the analyst added, noting that discretionary sales are likely to be pressured for at least the remainder of 2023

Citi’s note did not mention the intense anti-LGBTQ+ backlash against Target’s Pride collection in recent weeks. Last week, Target’s stock snapped its longest losing streak in 23 years — 11 days — amid the backlash against the retail giant.

Target was also downgraded to neutral from overweight by JPMorgan last week, which cited the impact of “consumer pressures and recent company controversies” related to the retail giant.

Related: Target sees more foot traffic despite anti-LGBTQ+ backlash, research finds

However, location-intelligence company Gravy Analytics says that foot traffic was up at Target stores last month.

Earlier this week Target’s stock was downgraded to sector weight from overweight by KeyBanc Capital Markets amid consumer-spending pressures, specifically the impact of student-loan repayments.

Of 35 analysts surveyed by FactSet, 19 have an overweight or buy rating and 16 have a hold rating for Target.