Target falling behind peers, BofA cuts to Sell

Investing.com -- Bank of America downgraded Target to Underperform from Neutral on Friday, citing a “deteriorating” long-term outlook and growing competitive pressure from Walmart and Amazon.

The price target was cut to $93 from $105, based on 12x BofA’s updated fiscal 2027 adjusted EPS forecast of $7.75.

“We see increasing longer-term sales and margin risks for TGT given slowing digital sales growth, a lack of scale in digital advertising and 3P marketplace, elevated tariff, pricing and merchandising headwinds, and increasing competitive threats from WMT and AMZN,” BofA said.

The bank noted that Target is “now underperforming WMT on a comp sales CAGR vs. 2019” and that digital trends are “very challenged,” with July mobile app monthly active users down 4.1% year over year, compared with Walmart U.S. growth of 17.2%.

BofA added that Walmart’s online sales growth of about 20-25% is also far ahead of Target’s 5-6% pace.

The bank warned that “digital traffic growth is key to scaling digital advertising and 3P marketplace fees, which are increasingly needed to mitigate gross margin pressures.”

Tariff exposure is another concern. Target’s imports account for roughly 50% of its cost of goods sold, versus Walmart’s 33%, meaning it “would require an ~8% avg. price increase to fully offset tariffs… compared to 4-5% for WMT,” BofA estimated.

The downgrade is “not a call on F2Q EPS results,” stated BofA.

Target reports second-quarter earnings on August 20, and BofA raised its forecast to $1.92 from $1.50, citing “continued benefits from shrink reduction” despite markdowns and weak sales.

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