Investing.com -- Big-box retailer Target's profit margins are likely to be supported by limited markdowns and lower freight costs, according to analysts at Deutsche Bank.
In a note to clients upgrading their rating of the company to "Buy" from "Hold," the analysts added that Minneapolis-based Target's stock trades at a discount compared to industry peers and "should move at least in line with to potentially above the market multiple."
Earlier this week, Target reported adjusted per-share income in the fourth quarter that topped average analyst estimates despite facing a slowdown in customer spending on discretionary items during a time of high inflation and elevated interest rates.
Chief Executive Officer Brian Cornell also noted that sales and traffic trends have displayed "improvement." Total comparable sales dipped by 4.4% in the three months ended on Feb. 3, but the decrease was less than the 4.56% drop predicted by Wall Street.
Sales, meanwhile, grew by 1.6% to $31.47 billion thanks in large part to an additional trading week in Target's 2023 fiscal year. Analysts had called for sales of $31.35B.
"Throughout the season, guests responded to newness, value, and the inspiration and ease of our in-store and digital shopping experience," Cornell said in a statement on Tuesday.
A drive to contain discounting and inventory-related costs, as well as lower input expenses, boosted earnings in the three months ended on Feb. 3. Adjusted earnings per share (EPS) jumped by 57.6% versus the year-ago period to $2.98, ahead of forecasts of $2.40.