Margin headwinds could limit upside
We believe Target’s (TGT) digital initiatives, including its expansion of online order fulfillments, coupled with its exclusive brands and store remodelings will continue to drive its traffic and comparable sales growth. However, Target faces tough YoY (year-over-year) comparisons, which could restrict its growth rate.
Target’s management expects its comparable sales to increase at a low- to mid-single-digit rate in 2019. Its expansion of its Shipt delivery to newer markets and its Drive Up service are likely to drive traffic. Meanwhile, its bottom line is projected to mark high-single-digit growth led by improved comps and share buybacks.
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However, Target’s margins could remain low, reflecting higher digital fulfillment costs and an adverse mix, which could, in turn, limit any further upside in its stock.
What analysts’ ratings and target price indicate
Analysts have a consensus target price of $85.19 per share on Target stock, suggesting a potential upside of a mere 3% based on its closing price of $82.68 on April 17. Analysts maintain a neutral stance on Target stock, reflecting continued pressure on its margins.
Among the analysts covering Target stock, 16 have given it “hold” ratings, nine have given it “buys,” and one has given it a “sell.” Analysts have suggested a “buy” rating on Costco (COST) stock, and they maintain a “hold” rating on Walmart (WMT) stock.