Target (NYSE:TGT)
On Monday, KeyBanc Capital Markets downgraded Target (NYSE:TGT) from an Overweight to a Sector Weight rating. The primary reason for this move was the firm’s worry over consumer headwinds over the next 18 months.
According to analyst Bradley Thomas, one of the most important factors to examine about Target stock is the debt ceiling agreement that was approved by Congress. This package contained a provision stating that payments on student loans would restart on or after August 30. According to Thomas, the study conducted by KeyBanc indicated a significant headwind resulting from the policy change.
“We estimate that the beginning of federal student loan repayments would cause a $46.1B headwind from September through December, with an annualized effect of $128.8B-$148.1B… This is based on the fact that about 27 million borrowers are anticipated to commence repayment and that the average monthly payment will be between $400 and $460. The modification to the policy raises the danger even more for the discretionary expenditure of consumers, in particular for the back-to-school season and the holiday season of 2023.
Thomas pointed out that many companies, including Dollar General, Big Lots, and Dollar Tree, reduced their guidance in conjunction with the release of their quarterly earnings reports, although Target maintained their previous level of expectations.
In terms of its value, it was noticed that Target trades at 17.1X and 15.5X KeyBanc’s 2023 and 2024 EPS expectations of $7.80 and $8.60, respectively. This contrasts the fact that Target trades at 15.5X its EPS estimates for this year. This level is compared to a forward P/E that has averaged 17X over the last five years, with a range from 11X to 24X.
Target stock was down 0.85% before the opening bell on Monday.
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