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