Goldman Cuts Price Objective On Target From $75 To $71

Target Corporation (NYSE: TGT) still seems to be struggling with a slowdown in traffic, and top-line challenges. Goldman Sachs’ Matthew J. Fassler maintained a Neutral rating on the company, while reducing the price target from $75 to $71.

Analyst Fassler expressed concerns regarding the causes of Target’s top-line struggles and the solutions for and implications of the same. The company’s Q1 performance was impacted as much as other companies in the sector, mainly due to weather conditions.

Slowdown In Traffic

Following a choppy Q1, traffic “slowed notably,” and Target’s top-line struggles resulted from several areas: “electronics was light, food remained anemic, the transition to CVS as operator of TGT’s pharmacies hit some friction, and “household essential” businesses also showed some volatility,” Fassler mentioned.

While some of these factors appear to be temporary, Target’s first traffic decline in six quarters “raises questions about ecommerce cannibalization and the fading of the relative appeal of TGT’s food offering among compelling options in an increasingly competitive food backdrop,” the analyst wrote. He added that the risk gets heightened by the increase in inventories.

Target still has “meaningful control” over its bottom-line, with ongoing cost reductions, as reflected by the company’s Q2 results, Fassler pointed out. The EPS estimate for 3Q16 has been reduced from $0.95 to $0.90. The EPS estimates for FY16, FY17 and FY18 have been reduced from $5.20 to $5.06, from $5.55 to $5.05 and from $5.80 to $5.00, respectively.

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