Investing.com -- Evercore ISI analysts on Thursday issued a negative tactical trading call on shares of Target Corporation (NYSE:TGT) and BJ's Wholesale Club Holdings (NYSE:BJ).
The move comes ahead of the companies’ upcoming third-quarter earnings reports, citing several concerns that could weigh on their financial performance.
For Target, the firm anticipates a sales trend deceleration to result in third-quarter earnings per share (EPS) of $2.28, slightly below the consensus estimate of $2.30. Despite this figure being within Target's August guidance range, Evercore is wary of a continuing deceleration into the fourth quarter.
“With easy shrink accrual comparisons cycling after 3Q, we believe TGT management team (including the new CFO who started during 3Q) will lean conservative into the holiday outlook,” Evercore analysts led by Greg Melich said in a note.
They project a potential downside for Target's stock price to $140, based on an estimated calendar year 2025 EPS of $10.45.
For, BJ's Wholesale Club, the investment bank foresees 8-10% downside potential to near $80 for BJ's shares, reflecting a cautious outlook on consumer spending and margin profiles moving into the fourth fiscal quarter.
Analysts estimate a third-quarter comp of 1.4%, with an EPS of $0.92, both figures slightly below consensus estimates. The firm also notes BJ's reduced full-year gross margin guidance and potential headwinds to membership fee growth.
“BJ’s is facing a challenging middle income consumer spend backdrop, with share encroachment from Walmart/Costco/Amazon to constrain growth in consumables and flat to slight growth for general merchandise,” analysts said.
The firm also points to wage inflation and the need for reinvestment in store experience as additional pressures on BJ's operating margins. Moreover, BJ's recent COO resignation and the challenges of launching new general merchandise offerings during the critical holiday season are seen as risks that could impact fourth-quarter results.
BJ's current valuation, at over 21 times forward two-year EPS, is the highest since its 2017 IPO, which Evercore believes limits the stock's upside potential.
“With earnings estimates at modest risk, we think the risk/reward into next week’s print skewed to the downside,” analysts noted.