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Evercore is moving to the sidelines on Target and Walmart due to potentially weaker consumer spending. The firm moved both retailers to its tactical underperform list on Wednesday, saying it expects volatility in the stock in the near term as the companies are likely comment on ongoing inflationary pressures and headwinds to consumer spending. Evercore’s cautiousness comes a day after fresh inflation data showed prices ticked up more than expected in January. Housing costs remain high, the analyst said, which could hurt consumer spending. Walmart also could be impacted by changes in SNAP food assistance benefits and tax refunds. In addition, both Target’s and Walmart’s outlook for the year could be lower due to the U.S. presidental election, which could be a distraction, and a shorter holiday season. Shares of Walmart have ticked up roughly 7% from the start of the year, while Target stock has climbed more than 2%. “We believe Walmart is likely to meet Street estimates for F4Q, but see potential near term downside of around mid single digits for the stock due to what we believe is likely to be conservative guide/tone on the consumer,” analyst Greg Melich said. “With short interest just 2% and most investors positively biased toward the name, we see risk for a mild near term correction for the stock.” Melich noted that Walmart remains on Evercore’s top pick list despite the potential near-term headwinds around quarterly results on Feb. 20. He highlighted the company’s ability to boost store traffic, gain market share and grow profit margins. Analysts surveyed by FactSet estimate Walmart will earn $1.64 per share on revenue of $170.8 billion. For Target, analysts are expecting earnings of $2.39 per share on revenue of $31.8 billion. “We see potential near-term downside of mid to high single digits for TGT to $130-$135 (14.5-15x ~$9 CY24 EPS) due to what we believe is likely to be a conservative guide/mixed tone on the consumer,” Melich said. He still expects Target to at least meet expectations for the quarter on March 5. Evercore maintains an in line rating on Target stock with a $156 per share price target, or about 7% upside. On Walmart, Evercore is standing by an outperform rating with a $182 per share price target, which represents roughly 8% upside. — CNBC’s Michael Bloom contributed to this report.
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