S&P 500   4,967.23
DOW   37,986.40
QQQ   414.65
Tesla cuts US prices for 3 of its electric vehicle models after a difficult week
A coffee roastery in Finland has launched an AI-generated blend. The results were surprising
Autoworkers union celebrates breakthrough win in Tennessee and takes aim at more plants in the South
New York lawmakers pass $237 billion budget with policies to jump-start housing market
The House votes for possible TikTok ban in the US, but don't expect the app to go away anytime soon
Biden sees a $35 price cap for insulin as a pivotal campaign issue. It’s not that clear-cut
Hawaii lawmakers take aim at vacation rentals after Lahaina wildfire amplifies Maui housing crisis
S&P 500   4,967.23
DOW   37,986.40
QQQ   414.65
Tesla cuts US prices for 3 of its electric vehicle models after a difficult week
A coffee roastery in Finland has launched an AI-generated blend. The results were surprising
Autoworkers union celebrates breakthrough win in Tennessee and takes aim at more plants in the South
New York lawmakers pass $237 billion budget with policies to jump-start housing market
The House votes for possible TikTok ban in the US, but don't expect the app to go away anytime soon
Biden sees a $35 price cap for insulin as a pivotal campaign issue. It’s not that clear-cut
Hawaii lawmakers take aim at vacation rentals after Lahaina wildfire amplifies Maui housing crisis
S&P 500   4,967.23
DOW   37,986.40
QQQ   414.65
Tesla cuts US prices for 3 of its electric vehicle models after a difficult week
A coffee roastery in Finland has launched an AI-generated blend. The results were surprising
Autoworkers union celebrates breakthrough win in Tennessee and takes aim at more plants in the South
New York lawmakers pass $237 billion budget with policies to jump-start housing market
The House votes for possible TikTok ban in the US, but don't expect the app to go away anytime soon
Biden sees a $35 price cap for insulin as a pivotal campaign issue. It’s not that clear-cut
Hawaii lawmakers take aim at vacation rentals after Lahaina wildfire amplifies Maui housing crisis
S&P 500   4,967.23
DOW   37,986.40
QQQ   414.65
Tesla cuts US prices for 3 of its electric vehicle models after a difficult week
A coffee roastery in Finland has launched an AI-generated blend. The results were surprising
Autoworkers union celebrates breakthrough win in Tennessee and takes aim at more plants in the South
New York lawmakers pass $237 billion budget with policies to jump-start housing market
The House votes for possible TikTok ban in the US, but don't expect the app to go away anytime soon
Biden sees a $35 price cap for insulin as a pivotal campaign issue. It’s not that clear-cut
Hawaii lawmakers take aim at vacation rentals after Lahaina wildfire amplifies Maui housing crisis

Target’s Guidance Looms Over The Market 

Target store - stock price forecast

Key Points

  • Target had a better-than-expected quarter but was not strong enough to raise guidance. 
  • The Q2 guidance was lowered, and the outlook for the 2nd half is optimistic. 
  • Increased shrinkage is a sign of the times and will be a problem for retailers across verticals. 
  • 5 stocks we like better than Target

Target NYSE: TGT reported a better-than-expected quarter driven by the underlying momentum within the US economy. That’s the good news. The bad news is that outlook is weak, echoing home improvement retailer Home Depot NYSE: HD, and gives further evidence of a looming recession in the US. While spending remains solid, consumer demand is weakening, and there is a shift as they cut out discretionary items in favor of food, shelter, and gasoline. 

This means a reduction to Target’s Q2 outlook that may foreshadow additional guidance reductions for the business and investors later in the year. The company is not in danger of failure, it has the positioning and resources to make it through the dark time, but investors should not expect a rally in this stock to hold if it forms, and there is a chance the market will retest lows set in 2022. 

Among the headwinds facing Target is shrinkage. Shrinkage is the polite form of shoplifting, cutting into margins. Shrinkage has been rising since late last year and is a sign of an increasingly pinched consumer. For Target, it means a weakening consumer and additional costs to prevent theft. 

“As we look ahead, we now expect shrink will reduce this year's profitability by more than $500M compared with last year. While there are many potential sources of inventory shrink, theft and organized retail crime are increasingly important drivers of the issue,” CEO Brian Cornell said.

Target Has Better Than Expected Quarter But Guides Q2 Lower 

Target’s Q1 results were better than expected, but the news cannot offset the guidance and potential for additional reductions. The company reported $25.32 billion in revenue for a gain of 0.6% compared to last year to beat the Marketbeat.com consensus by $0.040. That’s a slim margin even when compounded by a better-than-expected profit margin. Comp-store sales are up 0.7% versus the 1.1% expected and were offset by a 3.4% decline in digital sales.  


Margin news is mixed, with gross margins improving by 70 basis points and SG&A offsetting that with an increase of 90 basis points. The takeaway is that operating income fell 1.4% compared to last year and the top-line growth, but the analysts were expecting worse results. The adjusted earnings came in at $2.05 compared to last year’s $2.19 but are $0.29 above consensus. 

The bad news is that Q2 guidance was reduced due to slowing consumer demand, and the FY guidance, which was maintained, is optimistic. The company expects Q2 earnings in a range of $1.30 to $1.70 compared to the $1.93 consensus figure and for this weakness to be offset by the Q1 strengths. The 2nd half of the year is expected to be as previously guided, which the market should not expect given the deteriorating near-term outlook.

The Technical Outlook: Target Is Trapped In A Range 

The Target price action is range bound and will likely remain so in 2023. The top is near $181, consistent with the analysts' consensus target. That target has held steady over the last 3 months and may edge lower now that the guidance has been updated. Regardless, the stock is unlikely to move above the $181 level in 2023 until there is a positive change in the outlook for revenue and earnings. Until then, the odds of retesting support at the bottom of the range near $140 remain very high. If the market can’t get above the 150-day moving average near $163, the action may test the bottom of the range before it retests the top. 

Should you invest $1,000 in Target right now?

Before you consider Target, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Target wasn't on the list.

While Target currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Home Depot (HD)
4.7033 of 5 stars
$335.36+0.7%2.68%22.21Moderate Buy$375.96
Target (TGT)
4.7417 of 5 stars
$168.30+1.0%2.61%18.85Moderate Buy$181.85
Compare These Stocks  Add These Stocks to My Watchlist 

Thomas Hughes

About Thomas Hughes

  • tmhughes.writeon@gmail.com

Contributing Author

Technical and Fundamental Analysis

Experience

Thomas Hughes has been a contributing writer for MarketBeat since 2019.

Areas of Expertise

Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies

Education

Associate of Arts in Culinary Technology

Past Experience

Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights. 


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