Target PT Cut to $160 from $180 at Morgan Stanley

Investing.com -- Morgan Stanley cut its price target for Target (NYSE:TGT ) to $160 from $180 on Thursday, citing recent challenges and heightened uncertainty in the retail landscape. 

Despite this revision, the firm maintains an Overweight rating on the stock, highlighting a favorable risk/reward profile with a potential upside of 31% to the new price target and up to 89% in a bullish scenario.

Target’s recent struggles include weaker-than-expected performance in discretionary categories, warm fall weather impacting seasonal sales, and disruptions at ports, all of which contributed to a setback in its efforts to return to a 6% EBIT margin. 

Morgan Stanley (NYSE:MS ) analysts note that these headwinds were "caused by industry-wide challenges," but they see potential for recovery if Target can leverage new merchandise, deliver value, and enhance convenience for consumers.

Looking ahead, Morgan Stanley anticipates some short-term pain, including markdowns on fall merchandise due to excess inventory. 

“Looking at '25, we expect ongoing initiatives in merchandise efficiency and growth in Roundel advertising income to provide margin support,” said Morgan Stanley.

The bank’s revised price target reflects a slightly lower price-to-earnings multiple of 14.8x, down from 15.5x, to account for uncertainties regarding Target’s ability to achieve its operational goals. 

These include stabilizing categories like apparel and home goods, offsetting macroeconomic pressures on middle- and low-income consumers, and navigating potential further gross margin impacts from markdowns.

“[The] risk/reward at current levels is intriguing, provided TGT can reengage consumers in discretionary goods by leveraging newness, value and convenience; and resume its earlier progress in operational efficiency,” added the bank.

Source: Investing.com