On Thursday, RBC Capital adjusted its outlook on Target Corporation (NYSE:TGT), reducing the price target to $181 from the previous $191, while maintaining an Outperform rating on the stock. The revision reflects a more conservative view on the retailer's future performance, with the analyst noting that the opportunities for easy gross margin improvements have largely been exhausted.
The analyst's commentary highlighted a shift in focus towards demand trends and market share, which currently present limited visibility. The consumer reaction to recent price reductions by Target is expected to play a significant role in the company's performance. In light of these factors, RBC Capital has made slight adjustments to its sales and earnings projections for Target.
For the fiscal years 2024 and 2025, the firm now anticipates comparable sales growth of 0.4% and 2.4%, respectively, which is a slight decrease from the earlier estimates of 0.6% and 3.3%. Additionally, the earnings per share (EPS) forecasts have been updated to $9.50 for FY'24 and $10.63 for FY'25, marginally up from the prior estimates of $9.46 and $10.60.
The reduced price target is based on an approximate 17 times multiple of the revised FY'25 EPS estimate of $10.63, which is a decrease from the prior multiple of 18 times. This adjustment in the price target multiple takes into account the reduced likelihood of margin expansion and the challenges in forecasting improvements in demand trends for Target.
InvestingPro Insights
In light of RBC Capital's revised outlook on Target Corporation (NYSE:TGT), it's worth noting some key metrics and insights from InvestingPro that could further inform investors. Target has demonstrated a strong track record of dividend reliability, having raised its dividend for 54 consecutive years, which might appeal to income-focused investors. Additionally, the stock's recent performance indicates that it may be in oversold territory, with a Relative Strength Index (RSI) suggesting potential for a rebound.
From a valuation standpoint, Target is trading at a P/E ratio of 17.46, which seems modest relative to near-term earnings growth prospects. This aligns with the analyst's reduced price target based on a 17 times multiple of the FY'25 EPS estimate. The company's revenue for the last twelve months as of Q1 2025 stands at 106.62 billion USD, with a gross profit margin of 27.97%, indicating a solid profitability framework.
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