TGT - Target is downgraded at KeyBanc due to massive student loan repayment headwind

2023-06-05 08:33:48 ET

KeyBanc Capital Markets lowered its rating on Target ( NYSE: TGT ) to Sector Weight from Overweight on Monday chiefly due to concerns over consumer headwinds over the next 18 months.

Analyst Bradley Thomas said a major consideration with Target ( TGT ) is the debt ceiling package passed by Congress, which included a condition that student loan payments resume after August 30. Thomas said KeyBanc's analysis suggested a sizable headwind from the policy change.

"With ~27M borrowers expected to begin repayment and an average monthly payment of $400-$460, we estimate the resumption of federal student loan repayments will create a ~$46.1B headwind from September-December, with an annualized impact of $128.8B- $148.1B... The policy change further elevates the risk for consumer discretionary spending, particularly for the 2023 back-to-school and Holiday Season."

Thomas noted firms such as Dollar General ( DG ), Big Lots ( BIG ) and Dollar Tree ( DLTR ) all lowered guidance with their Q1 earnings reports, while Target ( TGT ) held its guidance steady.

In terms of valuation, Target ( TGT ) was noted to trade at 17.1X and 15.5X KeyBanc's 2023 and 2024 EPS estimates of $7.80 and $8.60, respectively. That level compares with a five-year average forward P/E of 17X, with a range of 11X to 24x.

Shares of Target ( TGT ) fell 0.85% in premarket trading on Monday.

More on Target:

• Is Target A Safe Dividend Stock In The Current Climate? Continue To Avoid
• More articles from Seeking Alpha analysts
• Target earnings call transcript
• Valuation metrics on Target
• Financial comparisons to Target's sector peers
• Seeking Alpha's Quant Rating for Target

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