Target's stock was downgraded by economic analysts because of a resumption of student loan payments in the U.S. that was part of the recent debt ceiling bill.
KeyBanc Capital market analyst Bradley Thomas announced in a note on Monday that they were downgrading Target's stock from overweight to sector weight citing the resumption of student loan payments, MarketWatch reported.
"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," Thomas wrote in the note. "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."
The announcement came shortly after the House and Senate passed the debt ceiling bill agreed to by President Joe Biden and House Speaker Kevin McCarthy. Biden previously extended the pause on federal student loan payments, and his student loan forgiveness plan is facing legal battles in the U.S. Supreme Court. The bill that Biden signed into law included a portion that ended the current pause on student loan payments.
"The one thing is: This bill does end the payment pause. But very close to the timeframe, we were going to end it, as an administration, when it comes to repayment," Shalanda Young, director of the Office of Management and Budget, said during a White House press briefing last week.
Ahead of the resumption of student loan payments, an official from the U.S. Department of Education told Newsweek that the agency is dedicated to helping borrowers navigate the resumption of payments.
Thomas told Newsweek on Monday that given the resumption of student loan payments, "we think that's going to have a material impact on consumer spending."
"We've gotten some questions if it was around recent trends at Target, I don't think that helps the situation. When you have to stretch your dollars, you're not going to spend on discretionary products as much."
Thomas also noted that Target will not be the only company affected by the resumption of student loan debt payments.
Over the past few weeks, Target has faced an array of criticism and calls to boycott the store for LGBTQ+ items they were selling for 2023 Pride Season. Many conservatives called on followers to boycott Target the same way Anheuser-Busch and Bud Light were boycotted after they partnered with Dylan Mulvaney, a transgender influencer and activist. Items such as "tuck friendly" swimsuits, which are worn by transgender women to conceal private parts, became a focus of the criticism for conservatives.
"For more than a decade, Target has offered an assortment of products aimed at celebrating Pride Month," Target said in a statement following the calls to boycott. "Since introducing this year's collection, we've experienced threats impacting our team members' sense of safety and well-being while at work.
"Given these volatile circumstances, we are making adjustments to our plans, including removing items that have been at the center of the most significant confrontational behavior. Our focus now is on moving forward with our continuing commitment to the LGBTQIA+ community and standing with them as we celebrate Pride Month and throughout the year."
As of Monday, Target's stock price had fallen 16 percent over the past month and roughly 18 percent over the past year.
Newsweek reached out to Target via email for comment.
Update 6/5/23, 3:39 p.m. ET. This story was updated with comment from Bradley Thomas.
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Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
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