Target's stock (TGT) is likely to miss the mark in the near term, another top Wall Street firm warned on Friday.
"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 (which became more evident this earnings season)," Citi analyst Paul Lejuez said in a new note.
He added: "Despite the recent stock pressure, we cannot recommend investors buy the stock given these dynamics and now believe the risk/reward is more balanced, but risk is more to the downside near term."
Lejuez downgraded his rating on Target to Neutral from Buy.
Shares fell 1.4% at the market open on Friday.
The analyst cited new data showing Target's store traffic plunged 13.9% in the final week in May, likely as inflation-weary shoppers continued to spend cautiously despite the Memorial Day weekend holiday.
"We believe the macro backdrop is unfavorable for Target, as 55% of their sales are in discretionary product, which is likely to be pressured for at least the remainder of 2023," Lejuez added.
To be sure, Target's stock finds itself under siege ahead of the crucial back-to-school shopping season.
First, the company's decision in late May to remove some LGBTQ-themed merchandise after customer backlash has triggered even more global backlash.
Shares are down about 17% since mid-May as investors worry about potential third-quarter sales and profit hits from the high-profile fallout.
Meanwhile, Target is coming off another quarter of challenged sales as inflation-battered shoppers curtailed discretionary purchases such as apparel and home goods. Historically, these are bread-and-butter sellers for Target — and key profit-margin enhancers.
Alleged organized crime at Target stores is also weighing on results, execs have said.
And to add insult to injury, JPMorgan cut its rating on Target's stock on June 1 on a potential sales hit from the restart of student loan repayments in September.
"Target over-indexes to the millennial customer and, should student loan payments come back on, the company is more exposed than others in our coverage," JP Morgan analyst Chris Horvers said. "Buy-side client expectations are in the $6-8 million per month consumer outflow range should this happen, per our conversations, which represents a potential 1-2 point [comparable] headwind to retail spending."
Horvers is now at a Neutral rating on Target, similar to Citi's Lejuez.