On Tuesday, Stifel, a financial services firm, increased its stock price target for Target Corporation (NYSE:TGT), a major retail company, from $153.00 to $177.00, while maintaining a Hold rating on the stock.
The adjustment follows Target's fourth-quarter fiscal year 2023 results, which showed a smaller-than-expected decline in comparable store sales, down by 4.4%, and strong cost management that led to approximately 25% earnings before interest and taxes (EBIT) above the consensus.
Target's recent performance has prompted Stifel to revise its fiscal years 2024 and 2025 estimates upward. The firm believes that there is more potential for the stock to rise than to fall from its current levels, citing signs of improving discretionary spending, especially among lower-income households.
The revised estimates primarily account for better margin leverage due to slightly higher projected comparable store growth. Stifel considers the higher end of Target's 0%-2% comparable store growth guidance for fiscal year 2024 to be achievable.
The retailer has announced plans to open about 300 new stores over the next decade, which represents a 15% increase from the current number of stores. This expansion marks the first significant growth of larger-format stores since at least 2015.
Target's strategy is expected to drive an average sales growth of around 4% annually over the next ten years. Additionally, the company aims to return to at least the pre-Covid EBIT margin of 6.0%.
Overall, Stifel's updated price target for Target reflects a valuation based on 10 times the forecasted EBITDA for fiscal year 2025. The company's efforts in store expansion and its focus on achieving historical profit margins contribute to the positive outlook for its stock price.
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