Target downgraded as Wells Fargo says outlook has ‘deteriorated meaningfully’
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Target Corporation (NYSE:TGT) is not a top pick for defensively minded investors in 2023, according to Wells Fargo analyst Edward Kelly.
âTGT's outlook has deteriorated meaningfully and we no longer see it as an attractive investment into an uncertain 2023,â he explained. âOur concerns include the potential for a sustained period of comp weakness in general merchandise, an inflection to negative traffic in Q4, a lack of visibility on the timing/magnitude of the margin recovery story, and the return of pre-COVID model scalability concerns.â
As such, Kelly cut his rating on the stock to Equal Weight from a prior Overweight and reduced his price target to $142 from $170. Shares of Target ticked 1.14% lower in premarket trading on Wednesday.
Kelly told clients that shifting to a more conservative, defensive orientation is certainly prudent at present. However, the opportunities in consumer staples retail names âdonât look particularly compellingâ to start the year, in his view.
âIn the end, we find ourselves sifting through a landscape of weakening sales momentum, a complex margin set-up with plenty of company-specific puts and takes, and varying degrees of earnings risk,â he wrote on Wednesday, advising selectivity.
Target, along with Sprouts Farmers Market (SFM), Kroger (KR), United Natural Foods (UNFI), and Costco Wholesale Corporation (COST) were cited as the âbottom fiveâ retailers at risk in the coverage. Kelly indicated his preference for Performance Food Group (PFGC), Dollar General (DG), BJâs Wholesale Club (BJ), Caseyâs General Stores (CASY), and Walmart (WMT) as top picks based upon consumer trade down and valuation considerations. 
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