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Is Target Stock a Buy or Sell at Its Current Valuation?
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Key Takeaways
TGT trades 32% below its 52-week high and at a sharp discount to peers despite recent share-price strength.
TGT's digital ecosystem is expanding, with same-day services, Target Plus and Roundel driving growth.
TGT cut its FY25 EPS view, as weak discretionary demand and rising debt will likely hurt near-term results.
Target Corporation (TGT - Free Report) is currently trading at a forward 12-month price-to-earnings (P/E) multiple of 12.84X, which positions it at a discount compared with the Zacks Retail - Discount Stores industry's average of 29.76X. The key issue for investors is whether this discounted valuation reflects underlying business challenges or presents a buying 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) , with a forward 12-month P/E of 20.14, Dollar Tree, Inc. (DLTR - Free Report) , with 19.59, and Costco Wholesale Corporation (COST - Free Report) , with 41.91.
Despite the recent price appreciation, Target’s stock continues to trade at a meaningful discount to the broader industry. TGT shares have gained 14.5% over the past month, outperforming the industry’s growth of 3.2%. The stock has also outpaced the Retail-Wholesale sector and the S&P 500 Index’s advance of 3.4% and 2.6%, respectively, during the same period.
TGT’s Past-Month Performance
Image Source: Zacks Investment Research
Target has underperformed Dollar General and Dollar Tree, while outperforming Costco. Over the past month, shares of Dollar General and Dollar Tree have rallied 37.5% and 28.3%, respectively, whereas Costco shares have declined 3.1%.
TGT’s Performance vs. Peer Performance
Image Source: Zacks Investment Research
Closing at $98.60 in yesterday’s trading session, the TGT stock stands 32% below its 52-week high of $145.08 reached on Jan. 28, 2025. Target is trading above its 50 and 200-day simple moving averages of $90.96 and $94.70, respectively, indicating a favorable technical setup for the stock.
TGT Trades Above 50 & 200-Day Moving Averages
Image Source: Zacks Investment Research
Momentum Behind Target’s Recent Stock Price Rally
Target’s recent share-price strength is being underpinned by steady progress across its digital, innovation and merchandising initiatives, even as the broader retail backdrop remains challenging. Digital comparable sales increased 2.4% in the fiscal third quarter, driven by robust adoption of same-day services. In particular, same-day delivery via Target Circle 360 rose more than 35%, underscoring the growing importance of convenience-led shopping.
At the same time, Target’s Marketplace and media platforms continued to scale, with Target Plus generating nearly 50% growth in gross merchandise value and Roundel posting mid-teens revenue growth, reinforcing the profitability of TGT’s digital ecosystem.
Technology innovation remains a key differentiator. Target is extending its leadership in AI-enabled retail through a first-of-its-kind conversational shopping experience within ChatGPT. This integration allows guests to browse curated assortments, complete multi-item purchases, shop fresh food and choose Drive Up, Pickup or shipping options in a single, seamless journey. Personalized recommendations further enhance the experience, reflecting Target’s strategy to blend convenience, discovery and value wherever customers engage.
Ongoing operational and technology enhancements are improving execution. Advanced machine-learning models and new generative AI tools are strengthening demand forecast, assortment planning and speed to market. Capabilities such as Target Trend Brain and synthetic audiences have sharpened decision-making, contributing to a 150-basis-point improvement in on-shelf availability — the company’s strongest gain in several years — along with smoother inventory flow across the network.
Merchandising initiatives are also gaining traction. Fun 101, Target’s revamped Hardlines strategy, delivered solid growth across toys, games, entertainment and sporting goods, while Food & Beverage posted continued comparable-sales growth, led by beverages, confectionery and trend-forward wellness offerings. Newness resonated particularly well in apparel categories, such as denim, sleepwear and seasonal assortments, highlighting the effectiveness of Target’s design-led approach.
Looking ahead, Target is leaning into long-term growth with a stepped-up investment plan. Capital expenditure is expected to rise year over year by $1 billion or 25% from $4 billion in fiscal 2025 to $5 billion in fiscal 2026. These investments will support additional store remodels, expanded fulfillment capacity, new larger-format locations and the most significant floor-pad upgrades in a decade. Early results from remodeled and newly opened stores continue to exceed expectations, providing confidence in the company’s elevated spending strategy.
TGT’s Downward Estimate Revisions Raise Concerns
The Zacks Consensus Estimate for Target’s fiscal 2025 projects a 1.6% year-over-year decrease in sales and a 17.7% decline in EPS. For fiscal 2026, the consensus estimate indicates a 2.2% rise in sales and 6% growth in earnings. The consensus estimate for EPS for the current and next fiscal years has fallen by 3 cents and 30 cents to $7.29 and $7.73, respectively, over the past 30 days.
Image Source: Zacks Investment Research
What’s Behind TGT’s Downward Estimate Revision?
Target continues to grapple with a slow recovery in demand as macro pressures weigh on discretionary spending. While third-quarter fiscal 2025 results came in line with internal expectations, performance remained under pressure. Net sales declined 1.5% year over year, while comparable sales fell 2.7%, reflecting ongoing softness in consumer traffic. Comparable-store sales dropped 3.8%, underscoring persistent challenges across brick-and-mortar locations. Discretionary categories, particularly Home and Apparel, continued to be the weakest areas in the quarter.
Consumer caution remained a key headwind to merchandise performance. Merchandise revenues declined 1.9% year over year to $24,752 million as shoppers increasingly focused on value and essential purchases. Traffic decreased 2.2%, and the average transaction value slipped 0.5%, pointing to restrained spending behavior. Higher-margin categories were disproportionately affected, with Apparel & Accessories, and Home Furnishings & Decor posting revenue declines of 4.1% and 6.6%, respectively.
These operational challenges translated into softer earnings performance. Adjusted earnings per share declined to $1.78 from $1.85 in the prior-year period. Management expects a low-single-digit decline in both sales and comparable sales for the fourth quarter of fiscal 2025. In response to a volatile operating environment, the company narrowed its full-year adjusted EPS outlook to $7.00-$8.00 compared with the prior mentioned $7.00-$9.00. In fiscal 2024, adjusted EPS was $8.86.
Balance sheet trends are also contributing to near-term caution. Long-term debt and other borrowings increased to $15,366 million in the third quarter from $14,346 million a year earlier, resulting in higher interest expenses. Net interest costs rose to $115 million, while trailing 12-month after-tax return on invested capital declined to 13.4% from 15.9%. Although management remains confident in Target’s long-term strategy, elevated leverage and muted demand continue to weigh on near-term earnings visibility — factors that help explain the recent downward revisions to estimates.
How to Play TGT Stock?
Target’s discounted valuation and recent technical strength reflect the growing confidence in its long-term strategy, supported by meaningful progress in digital capabilities, AI-driven innovation and merchandising execution.
However, near-term fundamentals remain constrained by cautious consumer spending, ongoing pressure in discretionary categories and downward revisions to earnings expectations, which temper the upside case for the stock at present. As a result, while the stock appears reasonably positioned rather than overextended, the risk-reward profile does not yet warrant an aggressive stance.
Current investors may be best served by maintaining their positions, while prospective investors may prefer to wait for greater visibility on earnings stabilization before committing fresh capital.
Image: Bigstock
Is Target Stock a Buy or Sell at Its Current Valuation?
Key Takeaways
Target Corporation (TGT - Free Report) is currently trading at a forward 12-month price-to-earnings (P/E) multiple of 12.84X, which positions it at a discount compared with the Zacks Retail - Discount Stores industry's average of 29.76X. The key issue for investors is whether this discounted valuation reflects underlying business challenges or presents a buying 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) , with a forward 12-month P/E of 20.14, Dollar Tree, Inc. (DLTR - Free Report) , with 19.59, and Costco Wholesale Corporation (COST - Free Report) , with 41.91.
Despite the recent price appreciation, Target’s stock continues to trade at a meaningful discount to the broader industry. TGT shares have gained 14.5% over the past month, outperforming the industry’s growth of 3.2%. The stock has also outpaced the Retail-Wholesale sector and the S&P 500 Index’s advance of 3.4% and 2.6%, respectively, during the same period.
TGT’s Past-Month Performance
Image Source: Zacks Investment Research
Target has underperformed Dollar General and Dollar Tree, while outperforming Costco. Over the past month, shares of Dollar General and Dollar Tree have rallied 37.5% and 28.3%, respectively, whereas Costco shares have declined 3.1%.
TGT’s Performance vs. Peer Performance
Image Source: Zacks Investment Research
Closing at $98.60 in yesterday’s trading session, the TGT stock stands 32% below its 52-week high of $145.08 reached on Jan. 28, 2025. Target is trading above its 50 and 200-day simple moving averages of $90.96 and $94.70, respectively, indicating a favorable technical setup for the stock.
TGT Trades Above 50 & 200-Day Moving Averages
Image Source: Zacks Investment Research
Momentum Behind Target’s Recent Stock Price Rally
Target’s recent share-price strength is being underpinned by steady progress across its digital, innovation and merchandising initiatives, even as the broader retail backdrop remains challenging. Digital comparable sales increased 2.4% in the fiscal third quarter, driven by robust adoption of same-day services. In particular, same-day delivery via Target Circle 360 rose more than 35%, underscoring the growing importance of convenience-led shopping.
At the same time, Target’s Marketplace and media platforms continued to scale, with Target Plus generating nearly 50% growth in gross merchandise value and Roundel posting mid-teens revenue growth, reinforcing the profitability of TGT’s digital ecosystem.
Technology innovation remains a key differentiator. Target is extending its leadership in AI-enabled retail through a first-of-its-kind conversational shopping experience within ChatGPT. This integration allows guests to browse curated assortments, complete multi-item purchases, shop fresh food and choose Drive Up, Pickup or shipping options in a single, seamless journey. Personalized recommendations further enhance the experience, reflecting Target’s strategy to blend convenience, discovery and value wherever customers engage.
Ongoing operational and technology enhancements are improving execution. Advanced machine-learning models and new generative AI tools are strengthening demand forecast, assortment planning and speed to market. Capabilities such as Target Trend Brain and synthetic audiences have sharpened decision-making, contributing to a 150-basis-point improvement in on-shelf availability — the company’s strongest gain in several years — along with smoother inventory flow across the network.
Merchandising initiatives are also gaining traction. Fun 101, Target’s revamped Hardlines strategy, delivered solid growth across toys, games, entertainment and sporting goods, while Food & Beverage posted continued comparable-sales growth, led by beverages, confectionery and trend-forward wellness offerings. Newness resonated particularly well in apparel categories, such as denim, sleepwear and seasonal assortments, highlighting the effectiveness of Target’s design-led approach.
Looking ahead, Target is leaning into long-term growth with a stepped-up investment plan. Capital expenditure is expected to rise year over year by $1 billion or 25% from $4 billion in fiscal 2025 to $5 billion in fiscal 2026. These investments will support additional store remodels, expanded fulfillment capacity, new larger-format locations and the most significant floor-pad upgrades in a decade. Early results from remodeled and newly opened stores continue to exceed expectations, providing confidence in the company’s elevated spending strategy.
TGT’s Downward Estimate Revisions Raise Concerns
The Zacks Consensus Estimate for Target’s fiscal 2025 projects a 1.6% year-over-year decrease in sales and a 17.7% decline in EPS. For fiscal 2026, the consensus estimate indicates a 2.2% rise in sales and 6% growth in earnings. The consensus estimate for EPS for the current and next fiscal years has fallen by 3 cents and 30 cents to $7.29 and $7.73, respectively, over the past 30 days.
Image Source: Zacks Investment Research
What’s Behind TGT’s Downward Estimate Revision?
Target continues to grapple with a slow recovery in demand as macro pressures weigh on discretionary spending. While third-quarter fiscal 2025 results came in line with internal expectations, performance remained under pressure. Net sales declined 1.5% year over year, while comparable sales fell 2.7%, reflecting ongoing softness in consumer traffic. Comparable-store sales dropped 3.8%, underscoring persistent challenges across brick-and-mortar locations. Discretionary categories, particularly Home and Apparel, continued to be the weakest areas in the quarter.
Consumer caution remained a key headwind to merchandise performance. Merchandise revenues declined 1.9% year over year to $24,752 million as shoppers increasingly focused on value and essential purchases. Traffic decreased 2.2%, and the average transaction value slipped 0.5%, pointing to restrained spending behavior. Higher-margin categories were disproportionately affected, with Apparel & Accessories, and Home Furnishings & Decor posting revenue declines of 4.1% and 6.6%, respectively.
These operational challenges translated into softer earnings performance. Adjusted earnings per share declined to $1.78 from $1.85 in the prior-year period. Management expects a low-single-digit decline in both sales and comparable sales for the fourth quarter of fiscal 2025. In response to a volatile operating environment, the company narrowed its full-year adjusted EPS outlook to $7.00-$8.00 compared with the prior mentioned $7.00-$9.00. In fiscal 2024, adjusted EPS was $8.86.
Balance sheet trends are also contributing to near-term caution. Long-term debt and other borrowings increased to $15,366 million in the third quarter from $14,346 million a year earlier, resulting in higher interest expenses. Net interest costs rose to $115 million, while trailing 12-month after-tax return on invested capital declined to 13.4% from 15.9%. Although management remains confident in Target’s long-term strategy, elevated leverage and muted demand continue to weigh on near-term earnings visibility — factors that help explain the recent downward revisions to estimates.
How to Play TGT Stock?
Target’s discounted valuation and recent technical strength reflect the growing confidence in its long-term strategy, supported by meaningful progress in digital capabilities, AI-driven innovation and merchandising execution.
However, near-term fundamentals remain constrained by cautious consumer spending, ongoing pressure in discretionary categories and downward revisions to earnings expectations, which temper the upside case for the stock at present. As a result, while the stock appears reasonably positioned rather than overextended, the risk-reward profile does not yet warrant an aggressive stance.
Current investors may be best served by maintaining their positions, while prospective investors may prefer to wait for greater visibility on earnings stabilization before committing fresh capital.
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.