Target's looming earnings report will show tariff pressure, Wall Street says

CNBC

20-05-2025

Wall Street is mostly downbeat heading into Target 's Wednesday earnings report as the retailer battles tariffs and other headwinds. Target's report comes as Wall Street and Main Street both contend with the evolving nature of President Donald Trump's plan for steep levies on imports. CEO Brian Cornell warned in March that consumers could soon begin seeing price hikes on produce alone, as a result of the levies on Mexican imports. At the same time, the Minnesota-based company has faced blowback from some consumers over its decision to join several other companies in pulling back on diversity, equity and inclusion (DEI) initiatives. Analytics firm Pacer.ai found year-over-year foot traffic fell for several weeks in a row following the company's DEI announcement in January. Add onto that growing concerns over souring consumer confidence and the risk that the economy might tip into a recession, and "the going is getting tough for Target," Bernstein analyst Zhihan Ma said in a note to clients last week. TGT XRT YTD mountain Target vs. the XRT ETF, year to date That's put Target and its shareholders in a tough spot. Shares have tumbled more than 27% since the start of 2025, far more than the nearly 4% loss in the SPDR S & P Retail ETF (XRT) . "In the short term, credit card data paints a bleak picture for Q1, dampened by poor weather, weak consumer sentiment and a DEI-related strike in March," Ma wrote to clients. "That's before tariffs enter the frame." A 'trade off' Ma said Target will likely need to cut its full-year guidance. She cut her investment rating on the stock to underperform from market perform and slashed her price target by $15 to $82, suggesting about 16% downside from Monday's close. "Long-term, Target faces a difficult trade off between stimulating top line growth and maintaining margins," Ma said. "Our analysis shows that it is unlikely to achieve both and, increasingly, neither." Barclays analyst Seth Sigman, meanwhile, called a weak first-quarter report "very much expected by now." What's "more concerning" are signs of weaker underlying trends, compounded by a macroeconomic landscape causing additional headaches for the retailer. Sigman kept his rating at equal weight, putting him in the majority of analysts polled by LSEG, 59% of whom are similarly neutral. However, the analyst slashed his price target by $38 to $102, now suggesting shares might rise just 4% or so from Monday's close over the coming year. This leads many to suggest Walmart is a better pick than Target. Walmart shares have jumped about 8% so far in 2025 and the lion's share of analysts surveyed by LSEG have a buy rating. Roth's Bill Kirk called Walmart the "strongest ship at sea" after the retailer beat expectations for earnings per share when reporting last week. Kirk said Walmart's deceleration in general merchandise sales may show broader troubles in the segment, which should in turn have negative implications for Target. Time to buy? Despite these roadblocks, other analysts see reason to stay positive on Target and see a coming rebound. After all, 38% of analysts rate it the equivalent of a buy, according to FactSet data. "Despite its challenges near term, we think TGT has an opportunity to improve its fundamentals," said UBS analyst Michael Lasser, who has a buy rating. While Lasser warned that investors should expect an "underwhelming" first-quarter report and guidance cut, he also said the stock could be reaching a point where downside is limited and a bottoming process can begin. The "critical question" investors should be asking, he said, is if the company has a plan to turn the ship around. Bank of America analyst Robert Ohmes is similarly optimistic that Target may see smoother sailing ahead. While he said the uncertain state of tariffs is still an overhang, he pointed to a better long-term position as cause for hope. Ohmes also rates Target a buy, and his $145 price target is far above the Street consensus of $116. "We believe attractive valuation, strategic initiative progress and gross margin recovery offset near-term sales volatility and competitive concerns," Ohmes wrote to clients in a note on Monday. "Moreover, TGT's earlier stages in high-margin ancillary business opportunities such as marketplace & advertising ... supports potential for stronger profitability long-term."