We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Should Investors Buy Target Stock at the Current Discounted Level?
Read MoreHide Full Article
Key Takeaways
Comparable store sales fell 3.2% y/y, dragging overall comps down despite digital growth.
The gross margin contracted from higher markdowns, tariffs and purchase order costs.
New merchandising strategy FUN 101 boosted hardlines growth by more than 5%.
Target Corporation (TGT - Free Report) is currently trading at a forward 12-month price-to-earnings (P/E) multiple of 11.50X, which positions it at a discount compared with the Zacks Retail - Discount Stores industry's average of 30.95X. The critical question for investors now is whether the TGT stock presents a buy opportunity.
TGT’s Valuation Snapshot
Image Source: Zacks Investment Research
This valuation is especially notable when compared with peers such as Dollar General Corporation (DG - Free Report) , which has a forward 12-month P/E of 16.87, Dollar Tree, Inc. (DLTR - Free Report) has 16.35 and Costco Wholesale Corporation (COST - Free Report) has 48.05.
The recent decrease in Target’s stock price has contributed to this discounted status. The company, which is a prominent player in the retail sector, has experienced a decline of 8.6% over the past three months, underperforming the industry's growth of 1.5%. TGT also trailed the Retail-Wholesale sector and the S&P 500 index that rallied 10% and 9%, respectively, during the same period.
TGT’s Past 3 Months’ Performance
Image Source: Zacks Investment Research
Target has also underperformed its peers, including Dollar General, Dollar Tree and Costco. Shares of Dollar Tree have rallied 2.9%, while shares of Dollar General and Costco have declined 4.8% and 4.6%, respectively, over the past three months.
TGT’s Performance vs. Peer Performance
Image Source: Zacks Investment Research
Closing at $90.78 in yesterday’s trading session, the TGT stock stands 43.8% below its 52-week high of $161.50 reached on Oct. 15, 2024. Target is trading below its 50 and 200-day simple moving averages of $100.54 and $108.79, respectively, signaling bearish sentiment in maintaining the recent performance levels.
TGT Trades Below 50 & 200-Day Moving Averages
Image Source: Zacks Investment Research
What’s Behind TGT’s Dismal Stock Run?
Target is struggling to regain momentum as it navigates a volatile retail environment. Second-quarter fiscal 2025 results came below management’s expectations. Comparable sales declined 1.9%, marking yet another period of contraction. The decline was largely attributed to a 3.2% drop in comparable store sales, which offset the rise achieved in comparable digital sales. Overall traffic fell 1.3%, accompanied by a 0.6% reduction in the average transaction size.
Margins also remained under pressure. The gross margin contracted by 100 basis points year over year due to higher markdown activity, purchase order cancellation costs and category mix. The operating margin shrank 120 basis points to 5.2% from 6.4% in the corresponding period last year. These headwinds pushed earnings per share (EPS) down to $2.05 from $2.57 in the prior-year period.
Although improved inventory shrink helped offset some of the impacts, the combination of tariffs, cancellations and markdown-related adjustments left profitability under pressure and raised doubts about the company’s ability to defend margins in the near term. We expect the operating margin to contract 20 and 10 basis points in the third and fourth quarters, respectively.
Moreover, Target’s long-term debt rose to $15.3 billion in the second quarter from $13.7 billion a year ago, pushing up interest costs to $116 million. This growing debt adds pressure amid ongoing sales and margin challenges.
Target foresees a low-single-digit decline in sales in fiscal 2025. The full-year adjusted EPS outlook was reiterated at $7.00-$9.00, but the breadth of the range signals continued uncertainty. Volatility in consumer demand and tariffs remain key risks, prompting management to adopt a cautious tone.
Downward Estimate Revisions Signal Pressure on TGT’s Earnings
Reflecting cautious sentiment around Target, the Zacks Consensus Estimate for EPS has seen downward revisions. Earnings estimates for fiscal 2025 have been southbound by 6 cents per share and the same for fiscal 2026 has been unchanged in the past 30 days.
Image Source: Zacks Investment Research
TGT’s Building Blocks for the Future
Target is making steady progress in navigating a volatile retail environment by leveraging its strong brand equity, broad assortment and operational discipline. Digital strength remains a major driver, with comparable online sales rising 4.3% year over year in the second quarter. Same-day delivery through Target Circle 360 grew more than 25%, highlighting how digital convenience and membership benefits are reinforcing customer loyalty.
The company’s profitable digital model also supports higher-margin businesses like Roundel and Target Plus, which continue to expand. Target rolled out more than 10,000 AI licenses in the second quarter to improve forecasting, automate manual work and strengthen replenishment. These tools helped deliver the best on-shelf availability in years and supported more reliable digital fulfillment.
Merchandising initiatives are beginning to show traction. The newly launched FUN 101 strategy brought cultural relevance and innovation into hardlines, fueling more than 5% growth in the category, its best performance since 2021. Trading cards, tech accessories and the Nintendo Switch 2 release were standout performers, while apparel and food & beverage also benefited from newness and trend-forward assortments.
Operationally, TGT achieved its best on-shelf availability metrics in years, reflecting improvements in supply-chain execution and inventory discipline. Inventory dollars grew just 2% year over year, while units declined in the low-single digit, a sign of more efficient management despite tariff pressures. Expense control also remained tight, with SG&A slightly lower than last year.
The leadership transition is adding momentum to the company’s long-term strategy. With Michael Fiddelke set to become CEO, the company is doubling down on three key priorities — reestablishing merchandising authority, elevating guest experience and embedding technology more deeply across operations. This transition, paired with a disciplined focus on style, innovation and digital growth, strengthens Target’s positioning for sustained recovery and profitable growth.
How to Play TGT Stock?
Given Target’s discounted valuation and its efforts to strengthen digital growth, merchandising authority and operational efficiency, the company shows promise for the long term. However, ongoing challenges such as declining comparable sales, margin pressures from tariffs and markdowns, and a cautious earnings outlook keep near-term risks elevated. We expect EPS to fall 3.8% and 5.4% in the third and fourth quarters, respectively.
Image: Bigstock
Should Investors Buy Target Stock at the Current Discounted Level?
Key Takeaways
Target Corporation (TGT - Free Report) is currently trading at a forward 12-month price-to-earnings (P/E) multiple of 11.50X, which positions it at a discount compared with the Zacks Retail - Discount Stores industry's average of 30.95X. The critical question for investors now is whether the TGT stock presents a buy opportunity.
TGT’s Valuation Snapshot
Image Source: Zacks Investment Research
This valuation is especially notable when compared with peers such as Dollar General Corporation (DG - Free Report) , which has a forward 12-month P/E of 16.87, Dollar Tree, Inc. (DLTR - Free Report) has 16.35 and Costco Wholesale Corporation (COST - Free Report) has 48.05.
The recent decrease in Target’s stock price has contributed to this discounted status. The company, which is a prominent player in the retail sector, has experienced a decline of 8.6% over the past three months, underperforming the industry's growth of 1.5%. TGT also trailed the Retail-Wholesale sector and the S&P 500 index that rallied 10% and 9%, respectively, during the same period.
TGT’s Past 3 Months’ Performance
Image Source: Zacks Investment Research
Target has also underperformed its peers, including Dollar General, Dollar Tree and Costco. Shares of Dollar Tree have rallied 2.9%, while shares of Dollar General and Costco have declined 4.8% and 4.6%, respectively, over the past three months.
TGT’s Performance vs. Peer Performance
Image Source: Zacks Investment Research
Closing at $90.78 in yesterday’s trading session, the TGT stock stands 43.8% below its 52-week high of $161.50 reached on Oct. 15, 2024. Target is trading below its 50 and 200-day simple moving averages of $100.54 and $108.79, respectively, signaling bearish sentiment in maintaining the recent performance levels.
TGT Trades Below 50 & 200-Day Moving Averages
Image Source: Zacks Investment Research
What’s Behind TGT’s Dismal Stock Run?
Target is struggling to regain momentum as it navigates a volatile retail environment. Second-quarter fiscal 2025 results came below management’s expectations. Comparable sales declined 1.9%, marking yet another period of contraction. The decline was largely attributed to a 3.2% drop in comparable store sales, which offset the rise achieved in comparable digital sales. Overall traffic fell 1.3%, accompanied by a 0.6% reduction in the average transaction size.
Margins also remained under pressure. The gross margin contracted by 100 basis points year over year due to higher markdown activity, purchase order cancellation costs and category mix. The operating margin shrank 120 basis points to 5.2% from 6.4% in the corresponding period last year. These headwinds pushed earnings per share (EPS) down to $2.05 from $2.57 in the prior-year period.
Although improved inventory shrink helped offset some of the impacts, the combination of tariffs, cancellations and markdown-related adjustments left profitability under pressure and raised doubts about the company’s ability to defend margins in the near term. We expect the operating margin to contract 20 and 10 basis points in the third and fourth quarters, respectively.
Moreover, Target’s long-term debt rose to $15.3 billion in the second quarter from $13.7 billion a year ago, pushing up interest costs to $116 million. This growing debt adds pressure amid ongoing sales and margin challenges.
Target foresees a low-single-digit decline in sales in fiscal 2025. The full-year adjusted EPS outlook was reiterated at $7.00-$9.00, but the breadth of the range signals continued uncertainty. Volatility in consumer demand and tariffs remain key risks, prompting management to adopt a cautious tone.
Downward Estimate Revisions Signal Pressure on TGT’s Earnings
Reflecting cautious sentiment around Target, the Zacks Consensus Estimate for EPS has seen downward revisions. Earnings estimates for fiscal 2025 have been southbound by 6 cents per share and the same for fiscal 2026 has been unchanged in the past 30 days.
Image Source: Zacks Investment Research
TGT’s Building Blocks for the Future
Target is making steady progress in navigating a volatile retail environment by leveraging its strong brand equity, broad assortment and operational discipline. Digital strength remains a major driver, with comparable online sales rising 4.3% year over year in the second quarter. Same-day delivery through Target Circle 360 grew more than 25%, highlighting how digital convenience and membership benefits are reinforcing customer loyalty.
The company’s profitable digital model also supports higher-margin businesses like Roundel and Target Plus, which continue to expand. Target rolled out more than 10,000 AI licenses in the second quarter to improve forecasting, automate manual work and strengthen replenishment. These tools helped deliver the best on-shelf availability in years and supported more reliable digital fulfillment.
Merchandising initiatives are beginning to show traction. The newly launched FUN 101 strategy brought cultural relevance and innovation into hardlines, fueling more than 5% growth in the category, its best performance since 2021. Trading cards, tech accessories and the Nintendo Switch 2 release were standout performers, while apparel and food & beverage also benefited from newness and trend-forward assortments.
Operationally, TGT achieved its best on-shelf availability metrics in years, reflecting improvements in supply-chain execution and inventory discipline. Inventory dollars grew just 2% year over year, while units declined in the low-single digit, a sign of more efficient management despite tariff pressures. Expense control also remained tight, with SG&A slightly lower than last year.
The leadership transition is adding momentum to the company’s long-term strategy. With Michael Fiddelke set to become CEO, the company is doubling down on three key priorities — reestablishing merchandising authority, elevating guest experience and embedding technology more deeply across operations. This transition, paired with a disciplined focus on style, innovation and digital growth, strengthens Target’s positioning for sustained recovery and profitable growth.
How to Play TGT Stock?
Given Target’s discounted valuation and its efforts to strengthen digital growth, merchandising authority and operational efficiency, the company shows promise for the long term. However, ongoing challenges such as declining comparable sales, margin pressures from tariffs and markdowns, and a cautious earnings outlook keep near-term risks elevated. We expect EPS to fall 3.8% and 5.4% in the third and fourth quarters, respectively.
Until more evident signs of sustained recovery emerge, investors should maintain their position. At present, TGT carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.