American big box retailer Target Corp. (TGT) is facing a proposed class action lawsuit for defrauding investors about the risks associated with its DEI (diversity, equity, and inclusion) and ESG initiatives. The lawsuit was filed on January 31 in the Fort Myers, Florida, federal court by the City of Riviera Beach Police Pension Fund. Target recently scaled back its DEI initiatives following severe consumer and activist backlash.
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The plaintiffs stated that the misrepresentation of the risks led to the ballooning of Target’s stock price between August 26, 2022 and November 19, 2024 (Class Period). Also, this led to investors paying higher prices for purchasing Target’s shares during the Class Period, which ultimately collapsed in the months ahead. Target shares ended the day down 2.7% yesterday.
Here’s Why Investors Are Suing Target
Shareholders allege that Target defrauded them by unknowingly leading them to support management’s “misuse of investor funds to serve political and social goals.” The lawsuit accuses CEO Brian Cornell and Target’s other executives of failing to properly disclose the risks of consumer boycotts related to the company’s DEI policies.
For instance, Target did not disclose the exact impact of the backlash faced during the May 2023 Pride Month campaign. At that time, Target was forced to stop selling some of the LGBTQ themed merchandise from their stores owing to severe backlash. This also led to employees fearing for their safety.
Furthermore, on November 20, 2024, Target reported poor Q3 FY24 results, with weaker-than-expected profit and holiday sales guidance for the December quarter. This resulted in a 22% drop in TGT stock price and a $15.7 billion reduction in its market cap in a single day.
This disappointing performance was completely opposite to rival Walmart’s (WMT) bustling results. Investors blamed the continued backlash from Target’s LGBTQ campaign for the poor performance.
Things became worse when Target said on January 24 that it was ending its DEI initiatives as well as a program supporting Black-owned businesses it began in 2020. Target has joined a growing list of American companies that are rolling back their DEI policies under pressure from activist and conservative groups. This was also one of the main agendas of President Trump’s campaign last year, and being in his good books will surely be beneficial for all companies.
Is Target a Good Investment?
Analysts remain divided on Target stock owing to similar reasons stated in the lawsuit. On TipRanks, TGT stock has a Moderate Buy consensus rating based on 15 Buys versus 15 Hold ratings. The average Target Corp. price target of $146.61 implies 9.3% upside potential from current levels. Meanwhile, in the past three years, TGT shares have lost nearly 32%, causing massive damage to shareholder returns.
