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Target (NYSE:TGT) stock has moved nearly 2% lower in pre-market Wednesday after Wells Fargo analysts downgraded to Equal Weight from Overweight.
The analysts note that Target’s outlook “has deteriorated meaningfully,” and as a result, they no longer see the stock as “an attractive investment into an uncertain 2023.” More precisely, they highlight 4 key concerns:
1) The potential for a sustained period of comp weakness in general merchandise,
2) An inflection to negative traffic in Q4,
3) A lack of visibility on the timing/magnitude of the margin recovery story, and
4) The return of pre-COVID model scalability concerns.
All-in-all, Wells Fargo sees limited upside in Target stock despite low expectations. The price target is lowered to $142 from $170 per share, implying a downside risk of over 6% relative to yesterday’s closing price.
“We see a complicated and rather uninspiring investment backdrop for our [retail] group as we kick off 2023. While defense should remain in vogue given the uncertain consumer backdrop, the fundamentals of our staples names don’t look particularly compelling,” the analysts wrote in a note.
Wells Fargo’s top picks in the retail sector include Performance Food Group (NYSE:PFGC), Dollar General (NYSE:DG), BJ’s Wholesale Club (NYSE:BJ), Walmart (NYSE:WMT), and Casey’s General Stores (NASDAQ:CASY).
