by Target (TGT) sales could face a hit as student loan payments resume in early September as part of the debt ceiling deal, JPMorgan warned Thursday afternoon.
“Target excessive ratios for the millennial customer, and if student loan payments come back, the company will be more exposed than others in our coverage,” analyst Chris Horvers wrote in a note obtained by Yahoo Finance. “Buyer customer expectations are in the $6-8 million per month consumer outflow range, if that happens, according to our conversations, which is a potential 1-2 points. [comparable] headwind to retail spending.”
Horvers lowered his rating to Neutral from Overweight. Its new price target is $133, down from $182.
The stock target was relatively unchanged at $130 on Thursday afternoon.
The new debt ceiling agreement between the White House and Republicans prohibits President Joe Biden from extending the student loan forbearance. Payments will restart on September 1st.
That comes as the Supreme Court is due to rule this month on the legality of Biden’s plan to cancel up to $20,000 in student loans per borrower.
The resumption of payment could have a negative impact on the economy and, by extension, on discretionary goods retailers such as Target.
“The impact on spending is likely to be modest over the medium term,” Goldman Sachs chief economist Jan Hatzius said in a new survey today. “We estimate that student loan repayments will subtract 0.2 percentage points from personal consumption expenditure growth this year if the student loan forgiveness plan is canceled or 0.1 percentage points if the plan remains.”
For the industry more broadly, that means more challenges for some already troubled retailers.
“The debt issue is absolutely something the retail industry – particularly some of the more distressed retailers – are grappling with, and that’s a challenge,” Forrester Research retail analyst Sucharita Kodali told Yahoo Finance Live (video above) ). “You’ve got two things working against you: You’ve got the fact that demand might be going down at a time when you also have your payments to make and it’s not as easy to borrow.”
Kodali added that this would “probably” lead to more retail bankruptcies in the next 12 to 24 months.
For Target, the student loan news comes at an awful time.
The company’s decision last week to remove some LGBTQ-themed merchandise following customer backlash sparked even more global backlash.
The stock has fallen about 14% over the past week and a half as investors worried about potential second-quarter selling and earnings impacts from the high-profile unrest.
Meanwhile, Target is coming off another challenging sales quarter as inflation-hit shoppers cut back on discretionary purchases such as clothing and home goods. These have historically been Target’s bread-and-butter sellers—and top profit margin boosters.
Alleged organized crime at Target stores is also weighing on the results, executives said.
Horvers believes cautious consumer spending warrants a more cautious approach to Target’s stock beyond the student loan payment issue.
“We continue to believe consumer is broadly weakening as wallet share moves away from goods (51% of Target sales) in progress,” added Horvers.
Brian Sozzi is the executive editor of Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi is at LinkedIn. Tips on the banking crisis? Email brian.sozzi@yahoofinance.com
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