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Target Stock Rose 20%, Analysts See More Upside

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  • Target stock rose 20% due to stellar second-quarter earnings and upbeat guidance.
  • Analysts boosted the target price, which reflected more upside in Target stock.
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Why did Target stock rise?

Target (TGT) shares rose more than 20% on Wednesday. The company beat the consensus estimates. Besides beating the second-quarter estimates by a wide margin, Target also raised its fiscal earnings outlook, which sent the stock higher. Due to a strong second-quarter performance and upbeat guidance, analysts boosted their target price on Target stock.

Jefferies increased its target price 31% to $111 on Target stock. Meanwhile, Telsey Advisory boosted its target price 25% to $115. Credit Suisse raised the target price on Target stock 24% to $112. Cowen boosted its target price 20% to $120. Meanwhile, KeyBanc raised the target price  9% to $120. J.P. Morgan also increased its target price to $115.

Among the 27 analysts covering Target stock, 13 recommended a “buy,” while 14 recommended a “hold.” We think that the recommendations could change soon. The company could witness multiple upgrades in the future.

Target’s strong performance lifted the market’s overall mood. The Dow Jones Industrial Average closed about 240 points higher. Meanwhile, the S&P 500 Index closed 24 points higher.

Target’s second-quarter results

Target posted better-than-expected revenues of $18.4 billion in the second quarter—up 3.6% YoY (year-over-year). Comparable sales rose 3.4% due to higher traffic. Comparable digital sales rose 34%. The gross margin and operating margin expanded by 30 basis points and 80 basis points, respectively.

The company posted an adjusted EPS of $1.82—up 23.8% YoY. Meanwhile, the earnings beat analysts’ expectation of $1.62. Buoyed by the strong performance, Target raised its fiscal EPS outlook by $0.15, which is impressive.

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Outlook for Target stock

Target has several catalysts that could drive its performance and stock in upcoming quarters. The company’s digital initiatives, including the expansion of same-day fulfillment options, will likely drive the traffic. Competitive pricing, stores remodeling, and compelling assortments should support Target’s comps growth.

Target’s profit margins are looking better, which is a positive sign. Meanwhile, the company’s earnings have been growing at a strong double-digit rate. On average, Target’s adjusted EPS has increased 17.3% in the last six quarters.

Besides the company’s strong financial performance, its low valuation compared to peers also supports the investment case. The stock trades at a forward PE ratio of 16.4x, which is about 50% lower than Costco’s forward PE ratio of 33.2x. Meanwhile, Target stock trades about 27% lower than Walmart’s forward PE ratio of 22.5x.

We expect Target to sustain the strong growth momentum in upcoming quarters. However, a slight pullback could present a better opportunity to become constructive on the stock. So far, the stock has already risen about 55.8% this year, which reflects most of the positives.

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