By Senad Karaahmetovic

Robert Ohmes (BofA analyst) lowered the rating Target (NYSE): To Neutral from Buy starting at $165.00 per Share

“We believe valuation pressure from discretionary category risks will likely offset strong long-term positioning,” Ohmes said in a client note.

The analyst said Target’s business update was surprising as it cut the outlook just 3 weeks after reporting earnings. Ohmes reduced the GM forecast from 26.1% to 24.9% and the F23E EPS to $8.50 to $10.70.

Excessive inventories and higher fuel costs are causing problems for the company.

“We believe the uncertainty in 2H margins given sales mix could continue to be unfavorable as competitors may also be clearing merchandise, and this could restrain TGT’s valuation given the current low valuations of many leading discretionary category retailers and TGT’s higher relative exposure to those categories,” Ohmes added.

The analyst is still positive on TGT’s long-term prospects, as TGT continues to experience strong traffic trends and strength in high frequency category.

Target shares are currently down 1.5%