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Target shares sink 3.9% as profit outlook dims. Is it time to buy or sell?


Target shares have fallen 32% this year, and the retailer just lowered its profit outlook as it tries to wind down excess inventory. Time to sell?

Target (TGT) stock sank after the retailer lowered its profit outlook as it plans additional price markdowns to wind down excess inventory.

That gloomy outlook dragged down the shares of its competitors as well.

The Minneapolis-based company now expects second quarter operating margin to hover around 2%, lower than the 5.3% midpoint expected in May.

Target’s plans include canceling orders while pursuing aggressive options to cut costs. Still, it said food & beverage, household essentials and beauty continued to show strength.

Traffic and sales continue to increase despite shifting consumer buying patterns and “rapidly changing operating conditions,” the company said.

Shares fell 3.9% to $153.45 at 12:12 p.m. in New York. Walmart (WMT) shares declined 1.9%, while Costco Wholesale (COST) slipped 0.9%.

Is Target stock now a buy after declining 33% this year?

Seventeen out of the 31 analysts who track the stock are recommending investors buy it, according to data on the Wall Street Journal website. Analysts, on average, expect Target to rally to $200.07, signaling a gain of about 30% from Tuesday’s level.

Four have an “overweight” recommendation, meaning Target should have a heavier weighting in one’s investment portfolio, compared to the allocation prescribed in major indices. The remaining 10 say investors should hold on to their shares.

“Sales and traffic are a bright spot” for Target, Morgan Stanley, which has an “equal-weight” rating on the stock, said in a report May 18. “TGT is likely still gaining share across categories and the value proposition continues to resonate with customers.”

Do technical indicators agree with analysts?

Technical indicators signal there’s more pain in store for Target shareholders. MarketEdge, which analyses prices, volume, technical indicators and sentiment, is recommending that investors either avoid the stock or bet against it.

Shares may continue on their downward path until the negative momentum reverses. “Wait for accumulation of indicators to turn positive as a sign that demand for the stock is improving,” MarketEdge said.

“We see a risk of sales losing momentum if overall consumer spending softens, either due to a recession or because of shifting consumer spending habits,” CFRA equity analyst Arun Sundaram said in a note June 4. His recommendation then was for investors to hold on to their Target shares, with a target price of $165.

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