Store of value: BofA believes foot traffic at Target will improve.
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Target
finally caught a break. BofA Securities upgraded the shares on Thursday, sending them higher in early morning trading.
Concerns about slowing consumer demand, rising theft levels, and strategic missteps have dragged Target stock (ticker: TGT) 26% lower this year. But BofA analyst Robert Ohmes argues the pullback has opened up an opportunity.
At current levels, Target shares are “compelling,” he wrote in a client note upgrading them to Buy from Neutral. He also raised his price target to $135 from $120. Target stock was up 1.3%, at $110.43, in recent trading. The
S&P 500
was down 0.1%.
“We believe the risk/reward outlook has improved and see catalysts that could drive upside to our modestly above-consensus EPS estimates,” Ohmes wrote. The stock trades at about 12.8 times one-year forward earnings, below its five-year average of 17, according to FactSet.
The analyst predicts that Target’s foot traffic could improve through the end of the year, receiving a boost from its October Circle Week, initiatives such as curbside Starbucks deliveries, and the rollout of new brands and partnerships.
Margins could also continue to improve, Ohmes wrote. He notes that freight costs are lower and the company has a better inventory position than last year, likely reducing the need for heavy discounts. Importantly, he adds, the company’s shrink problem—the industry term that encompasses theft and damage—“may be reaching a plateau.” Target previously said shrink would drag down full-year profitability by about $500 million.
Ohmes acknowledged the company still had to navigate through several challenges, including the resumption of student loan payments and macroeconomic uncertainty.
Indeed, Ohmes’ bullish take deviates from the Street’s overall opinion on the stock. Only 40% of analysts rate the stock a Buy, while 60% rate it a Hold, according to FactSet.
Write to Sabrina Escobar at [email protected]
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