On Tuesday, DA Davidson showed confidence in Target Corporation (NYSE:TGT) by increasing its share price target from $167 to $195 while reaffirming a Buy rating. The new target reflects optimism for the company's growth prospects, despite a year-over-year decline in sales reported for the fourth quarter of 2023 and expectations of a similar trend in the first quarter of 2024.
The firm anticipates Target's pivot to growth will likely begin in the second quarter of 2024 as the retailer moves past the challenging comparison period from the previous year, which included the Pride issue among other setbacks.
Analysts at DA Davidson believe that the resolution of past difficulties, such as the inventory surplus and inflationary pressures, will contribute to a resurgence in operating margins to pre-pandemic levels.
Target is expected to benefit from improving traffic trends and is currently investing in growth across various areas. The raised price target is based on an 18x multiple applied to the revised 2025 earnings per share (EPS) estimate, with a forecast that margins will return to 6.0%.
This margin level is within the range Target experienced in the twelve years before the pandemic, where margins fluctuated between 5.5% and 7.8%, averaging 6.8%.
The analyst's comments underscore the belief that Target is poised to overcome the issues that have affected its performance in recent years, setting the stage for a potential recovery. The investment firm's increased price target signals expectations for Target's shares to rise as the company's financial health improves.
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