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Target Gains as Jefferies Upgrades to Buy on Inventory Positioning

Stock Markets Oct 18, 2022 06:42
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By Senad Karaahmetovic 

Jefferies analysts upgraded shares of Target (NYSE:TGT) to Buy from Hold with a price target of $185 per share (up from $170).

The three key reasons why the analysts upgraded Target shares are: attractive valuation, supply chain improvements, and inventory positioning.

"While some element of risk still exists as a result of TGT's inventory positioning and lower grocery mix versus peers, we believe TGT is better positioned than the broader retail set at present. Inventory data corroborates this, as TGT witnessed a slowdown in YoY inventory growth in 2Q despite the broader peer group experiencing an acceleration," the analysts said in a client note.

Valuation is "depressed at ~13x FY'2 P/E versus a historical average of ~16x (and range of 11-22x)." The higher price target reflects raised FY23 EPS estimates.

"Based on our proprietary data work, despite the back-half weighted risk in the FY guide (our estimates are slightly below consensus and account for a lowered outlook), we think there is greater upside than downside to TGT shares at this point," the analysts added.

The analysts also reiterated a Buy rating on Walmart (NYSE:WMT) and raised the price target to $165 per share from $161. The company is seen as a "value leader and an outsized trade-down beneficiary."

"We believe WMT is well-positioned in the present environment, particularly given the benefit we estimate WMT could realize as a result of higher-income customers trading down. In fact, our math illustrates that WMT could witness a ~100bp lift to comps in our base case scenario," the analysts concluded.

Target shares are up 2.6% in pre-open Tuesday while Walmart stock is up 0.5%.

Target Gains as Jefferies Upgrades to Buy on Inventory Positioning
 

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