Why This Analyst Sees 50% Upside at Target After Earnings

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Target Corp. (NYSE: TGT) reported its most recent quarterly results before the markets opened on Tuesday. Although the report did not live up to expectations, one analyst was fairly positive on the stock, calling for about 50% upside.

BofA Securities reiterated its Buy rating with a $260 price objective, which would be about a 50% gain from the most recent closing price of $173.49.

The brokerage firm noted that the reported earnings per share (EPS) of $2.67 was ahead of its $2.50 and Wall Street’s $2.49 estimates. At the same time, same-store sales of 20.5% (versus BofA’s 17% forecast) implies a January comp acceleration following Nov/Dec comp growth of 17.2% and reflects continued market share gains across all five of Target’s core merchandising categories.

Target has gained about $9 billion in market share in 2020 across its portfolio, which implies $3 billion in market share gains in the fourth quarter. Ticket comps were up 13.1% in the fourth quarter and comp traffic grew 6.5%. Also, gross margin was 26.8%, ahead of BofA’s 26.6% estimate, reflecting the benefit of merchandising actions and unusually low markdown rates, partially offset by the impact of higher digital fulfillment and supply chain costs and the impact of category mix.

Stores enable continued strong digital growth through digital sales, which grew 118% in the fourth quarter, contributing 13.6% to comps, while store comps also increased 6.9%. Target’s same-day services grew 212% in the fourth quarter, led by over 500% growth in Drive Up. Also, over 95% of Target’s quarterly sales were fulfilled by its stores, which is key to omnichannel profitability.

The company did not provide guidance for the fiscal 2022 full year in light of continued COVID-19 uncertainty, though BofA Securities expects strong general merchandise trends, omnichannel engagement and improved cost efficiencies to position Target favorably for 2021 despite tough comparisons.

BofA Securities concluded saying:

We view Target as favorably positioned for the COVID-19 environment as well as trends over the long-term given strong execution of its stores-as-hub strategy as well as the company’s exposure to accelerating Discount Store Decade (DSD) drivers (including new home sales, competitor store closings, and omni-channel momentum).

Target stock traded up nearly 2% to $176.51 on Wednesday, in a 52-week range of $90.17 to $199.96. The consensus price target is $199.15.

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