On Wednesday, DA Davidson adjusted its price target for Target Corporation shares (NYSE:TGT), reducing it from $195.00 to $190.00 while retaining a Buy rating on the stock.
The revision comes after Target's recent earnings report, which, although in line with comparable sales expectations and showing improved gross margins, did not meet the heightened anticipation for earnings per share (EPS) and margin growth set by the company's performance in the previous three quarters.
In the third quarter of 2023, Target reported an EPS of $2.10, significantly surpassing the consensus estimate of $1.48, accompanied by a margin growth of 133 basis points (bps), well above the expected 10 bps.
The fourth quarter continued this trend with an EPS of $2.98 against a forecast of $2.41, and a margin growth of 210 bps compared to the anticipated 110 bps. Still, the latest quarter showed a marginal improvement of 4 bps in margins and a slight miss on the EPS, leading to some disappointment among investors.
The analyst noted that despite the recent underperformance, Target's valuation multiple remains reasonable. The stock has relinquished the 12% gain it experienced following the analyst day in March.
Current estimates for the company's financial performance are not likely to change, which implies that the stock is now trading at a discount. This situation is seen as an opportunity for investors, with expectations of positive comparable sales and continued margin improvements in the future.
DA Davidson's new stock price target of $190 is based on an 18 times multiple of the firm's 2025 EPS forecast. The firm reiterates its Buy rating, suggesting confidence in Target's potential for recovery and growth moving forward. Despite the recent setback, DA Davidson's outlook for Target remains optimistic, highlighting the retailer's capacity to turn around its comparative sales and further improve margins.
InvestingPro Insights
The latest data from InvestingPro shows that Target Corporation (NYSE:TGT) is currently trading at a P/E ratio of 16.02, which is attractive when considering the company's near-term earnings growth. This aligns with DA Davidson's assessment of Target's reasonable valuation.
In fact, Target's adjusted P/E ratio for the last twelve months as of Q4 2024 stands at an even more appealing 15.75, suggesting that the stock may indeed be trading at a discount.
InvestingPro Tips highlight Target's impressive history of dividend growth, having raised its dividend for 53 consecutive years and maintained payments for 54 years, which could be a reassuring factor for income-focused investors. Furthermore, analysts predict that the company will be profitable this year, with profitability already demonstrated over the last twelve months.
These factors, combined with Target's status as a prominent player in the Consumer Staples Distribution & Retail industry, provide a solid foundation for the company's potential recovery and growth that DA Davidson anticipates.
To gain more insights and access additional InvestingPro Tips for Target, which currently lists 9 tips, investors are encouraged to visit https://www.investing.com/pro/TGT. For those interested in a deeper analysis, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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