Investing.com -- Bernstein downgraded Target stock to Underperform from Market-Perform, pointing out a combination of near-term headwinds and structural challenges that threaten its longer-term growth and profitability.
The broker also cut its price target on the stock to $82 from $97, implying a 15% downside from the latest closing price.
The downward revision comes ahead of Target’s (NYSE:TGT) first-quarter results, which Bernstein analysts believe are likely to disappoint, citing weak consumer sentiment, unfavorable weather, and the negative impact of a “DEI-related strike” in March.
“That’s before tariffs enter the frame, which means that TGT will likely have to lower guidance for the full year,” analysts led by Zhihan Ma said in a note.
Beyond the immediate pressures, the analysts voiced concern over Target’s competitive positioning in key discretionary categories, such as apparel and home.
“Target is a structural share donor in key discretionary categories, impairing its earnings power,” the analysts wrote, highlighting that the U.S. retail giant has lost approximately 50 basis points of share in apparel and 90 basis points in home since 2019.
“It is our view that Target is losing out to digital and off-price competitors. Discretionary spend will return, but maybe not as much at Target,” the analysts added.
While the company’s management remains focused on digital channels and promotional pricing to drive traffic, Bernstein argues this strategy is margin-dilutive. E-commerce may help support top-line growth, but it is expected to remain a drag on profitability due to limited automation investment.
Target’s price positioning is also a concern, with Bernstein’s pricing monitor showing the retailer is 11% more expensive than Walmart (NYSE:WMT) for an identical basket of goods.
As a result, Bernstein now expects full-year 2025 (FY25) earnings per share (EPS) of $7.74, down from $8.32, and FY26 EPS of $7.30, from $8.07 previously. The firm also trimmed its FY26 comp sales and gross margin forecasts