Target's stock downgraded by KeyBanc Capital — but it's not because of its LGBTQ+ merchandise

By James Rogers

Target's stock was downgraded to sector weight from overweight by KeyBanc Capital Markets.

Target Corp.'s stock was downgraded to sector weight from overweight by KeyBanc Capital Markets Monday amid consumer spending pressures, specifically the impact of student loan repayments.

"While we still believe in the LT [long-term] margin recovery story, we downgrade TGT to SW given increasing consumer headwinds over the next 12-18 months," wrote KeyBanc analyst Bradley Thomas, in a note. Specifically, the resumption of student loan payments represents a "sizeable" headwind for discretionary spending, according to Thomas.

Student loan repayments are slated to resume later this year. Under the terms of the deal to raise the debt limit, the pause in student-loan repayments will end by Aug. 30.

Related: Target's stock, on its longest losing streak in 23 years, downgraded at JPMorgan

Target's (TGT) stock snapped its longest losing streak in 23 years last week. The company's shares ended Friday's session up 1.6%, outpacing the S&P 500 index's gain of 1.5%. Target's stock is down 0.8% in premarket trades Monday.

"Given the recent selloff in shares, we believe NT [near-term] downside may be limited, but we see the growing risk of student loan payments as likely pushing out the margin recovery story at least another year, thus pushing us to downgrade," wrote KeyBanc's Thomas.

Last week Target's stock was downgraded to neutral from overweight at JPMorgan, which cited "too many concerns rising" about the retail giant. Target could feel the impact when student-loan repayments resume, according to JPMorgan, which pointed to consumer spending pressures and the recent company controversies.

Related: Target's stock snaps longest losing streak in 23 years as anti-LGBTQ+ backlash continues

Target has faced an intense anti-LGBTQ+ backlash against the company's Pride collection in recent weeks.

Of 35 analysts surveyed by FactSet, 19 had an overweight or buy rating and 16 had a hold rating for Target.

Additional reporting by Tomi Kilgore.

-James Rogers

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06-05-23 1004ET

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