Wall Street Lunch: Target’s Price Drop Strategy

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Thousands of items will see everyday price cuts through the summer. (0:16) One of Wall Street’s biggest bears waves the white flag. (2:03) Endless shrimp hastens Red Lobster bankruptcy. (4:05)

This is an abridged transcript of the podcast.

Target (NYSE:TGT) announced that it will lower everyday regular prices on approximately 5,000 frequently shopped items across its large assortment.

The retailer has already reduced prices on about 1,500 items, with thousands more price cuts planned to take effect over the course of the summer. Categories with price cuts include milk, meat, bread, soda, fresh fruit, vegetables, snacks, yogurt, peanut butter, coffee, diapers, paper towels, pet food, and more.

Target noted that it routinely adjusts its prices to ensure it is competitive within the markets in which it does business. It also maintained that the new price reductions are on top of the retailer’s everyday low prices. The new pricing strategy will be watched closely by other retailers such as Walmart (WMT), Costco (COST), Dollar General (DG), Dollar Tree (DLTR), and Kroger (KR).

Executive VP Rick Gomez said: “We know consumers are feeling pressured to make the most of their budget, and Target is here to help them save more.”

In today’s trading, stocks are building a little momentum, led by growth stocks. The Nasdaq (COMP.IND) is leading the major averages, up more than +0.5%.

Info Tech (XLK) is the best-performing sector. Chip stocks rallied as traders positioned for Nvidia earnings on Wednesday.

Several analysts raised their price targets on Nvidia (NVDA) heading into its report. Barclays analyst Blayne Curtis boosted his target to $1,100 from $850, saying recent checks into its data center unit point to a potential 10% upside in the April quarter and slightly more than 20% in the July quarter as more capacity comes online.

Stifel analyst Ruben Roy raised his price target to $1,085 from $910, noting that supply chain checks continued to show “robust demand” for Nvidia’s H100 and H200 GPUs even as excitement around its upcoming Blackwell line of GPUs continues to grow.

Meanwhile, another equity bear bit the dust. Morgan Stanley strategist Mike Wilson now sees the broader market moving higher over the next year, albeit slightly.

Wilson, who had stuck to his bearish guns through the AI-led rally, now has a base case for the S&P 500 to rise to 5,400 over the next 12 months. That’s a little less than 2% higher than current levels.

He had one of the lowest 2024 S&P targets on Wall Street at 4,500.

In a note, Wilson said he expects the macro environment, where the consensus bounces from hard landing, soft landing, and no landing, to persist.

Wilson’s bull case for the S&P is 6,300, while the bear case is 4,200, with the larger than usual skew reflecting the macro uncertainty.

Among other active stocks, JPMorgan Chase (JPM) raised its full-year net interest income guidance to ~$91 billion from $90 billion ahead of its investor day event.

“Looking ahead, the environment is changing, with tailwinds from 2023 likely turning into headwinds and a number of uncertainties,” the bank said, adding that “we are well reserved for the current environment.”

Activist Elliott Investment Management has accumulated a stake of more than $1 billion in industrial company Johnson Controls (JCI). It wasn’t immediately clear what Elliott’s intentions were, according to Bloomberg. The Elliott stake comes as the performance of JCI stock has lagged its peers, Carrier Global (CARR) and Lennox International (LII).

And the wild swings for Faraday Future Intelligent Electric (FFIE) continued on, with the stock racing out to an 85% gain. Once again, there was not any fundamental news to account for the high-volume move. Faraday Future is scheduled to release its late Q4 earnings report on May 28. The company has not published its annual report yet.

The latest data from S3 Partners places the short interest outstanding on FFIE at 98%, which is the main reason for the sudden interest from traders in swapping the stock. The 52-week range for the EV stock is $0.04 to $117.36. It’s trading today between $1.50 and $2.

In other news of note. In the words of Homer Simpson, “The sign said all you can eat.” Red Lobster has filed for Chapter 11 bankruptcy, as expected.

The seafood restaurant chain buckled under mounting losses, costly leases, and rising material and labor costs. But it was the $20 endless shrimp deal that experts pointed to as the breaking point.

Red Lobster says it intends to use the bankruptcy proceedings to drive operational improvements, simplify the business through a reduction in locations, and pursue a sale of substantially all of its assets as a going concern.

The company has entered into what is known as a stalking horse purchase agreement to sell its business to an entity formed and controlled by its existing term lenders.

And in the Wall Street Research Corner, is it time for the Magnificent 7 label to ride off into the sunset? Goldman Sachs says the sobriquet needs to be retired following first-quarter results.

Strategist David Kostin says: “In aggregate, profits for (AAPL), (AMZN), (GOOGL), (META), (MSFT), (NVDA), and (TSLA) grew by 48% year over year, led by sales growth (+14%) and margin expansion of 521 bp (to 22.8%). But the combined results masks a wide dispersion.”

“Sales growth for META (+27%), GOOGL (+15%), and AMZN (+13%) beat expectations and powered YTD share price gains of 34%, 25%, and 21%, respectively,” Kostin said. “NVDA reports results this week; the share price has soared nearly 91% YTD in anticipation the company will post 1Q sales of $25 billion, per consensus (+241% vs. last year).”

“In contrast, AAPL sales fell by 4% and TSLA revenues dropped by 9%, and their stock prices have fallen by 1% and 30%, respectively. TSLA now ranks as the 12th largest stock in the S&P 500 index.”