Independent investment research publication Hedgeye recently targeted Target (NYSE:TGT) stock as a potential short candidate. With this year’s bear market seemingly continuing to blow cold air, could a TGT short be a hidden path to gains?
According to Hedgeye, the answer is an overwhelming yes. Pointing to Target’s “massive inventory problem,” Hedgeye analyst Brian McGough believes the company may end up bearing the brunt of an increasingly brutal season for consumer spending.
“TGT is sitting right in the bullseye of competitive pressure from the 80-90% of retailers that will be aggressively clearing product […] Bottom line is that going from ~$8 this year to $12 next year in EPS is a herculean feat that we don’t think TGT will pull off. This is one of the few times where we should see a meaningful price divergence between TGT (lower) and WMT.”
Target has repeatedly lowered its outlook to reflect the bottom-line impact of overstocked inventories. Per SeekingAlpha, the company is down more than 25% since slashing its full-year profit forecast in May.
Of course, the company has since repeatedly confirmed that its long-term outlook remains solid. It even expects to regain some lost ground in the second half of 2022. Until then, however, Target will likely have to deal with renewed short-term short interest following Hedgeye’s bearish take.
So, what else do you need to know about TGT stock lately?
TGT Stock Continues Tumble as Short Interest Grows
Unfortunately for this retailer, Hedgeye isn’t the only one that sees Target as a potential short play. TGT stock currently has a short volume of more than 7.7 million shares. This represents a short float 1.68%, a sizable difference to competitor Walmart’s (NYSE:WMT) 1.07%.
Target has undeniably been in a state of friction this year after consumer spending left the retailer with full shelves. The company has been forced to drastically slash prices for a large swathe of its goods in order to empty inventories. This has had a brutal affect on its gross margins, forcing Target to repeatedly lower its quarterly outlooks. In June, Target lowered its operating margin outlook twice to reflect the impact of cancelled orders and marked-down merchandise.
At the time, Target offered investors some confidence. The company said that, by taking a short-term profit hit, it would enjoy greater feasibility with its consumers moving forward. CEO Brian Cornell said the following:
“We thought it was prudent for us to be decisive, act quickly, get out in front of this, address and optimize our inventory in the second quarter — take those actions necessary to remove the excess inventory and set ourselves up to continue to be guest relevant with our assortment.”
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.