Target Corporation Target (TGT) is finally showing some signs that its turnaround is working, but Bank of America isn't ready to jump on the bandwagon just yet. With the retailer's fiscal second-quarter earnings set to drop next week, the bank is staying cautious, even as it nudges its price target higher.
Bank of America Securities analyst Christopher Nardone reiterated an Underperform rating on Target while raising the price forecast to $124 from $110. That new target still sits about 19% below the stock's $152.29 price as of Aug. 12. So while the bank acknowledges things are looking up, it thinks the market may have gotten a little ahead of itself.
Nardone also bumped up his earnings estimates, thanks to stronger consumer trends and improving sales under Target's new leadership. But he remains wary about how fast earnings revisions can keep up and whether the recent comparable-sales momentum can actually last.
Stronger Sales Lift Target Estimates
Bank of America raised its fiscal 2027 earnings estimate to $8.46 per share from $8.20. It also lifted its fiscal 2028 estimate to $8.84 from $8.53 and its fiscal 2029 estimate to $9.36 from $9.05. The firm increased its revenue forecasts for each of those years as well.
For the second quarter, Bank of America expects adjusted earnings of $2.34 per share, compared with the Visible Alpha consensus of $2.30. It forecasts net sales of $26.10 billion, roughly in line with consensus, and comparable sales growth of 2.5%, slightly above the 2.3% consensus estimate.
The analyst expects comparable sales to grow about 2% in the second half, roughly in line with Target's guidance. Resilient consumer spending helped drive the firm's improved outlook.
Margins Could Be A Bright Spot
Second-quarter margins might offer another positive surprise. Bank of America forecasts gross margin expanding 90 basis points year over year to 29.9%, about 20 basis points better than consensus. Easier merchandise-margin comparisons and lower tariff pressure should help.
However, selling, general and administrative expenses remain a wild card. Target's guidance includes about $1 billion of incremental SG&A spending and another $1 billion of incremental capital expenditures.
Nardone said those investments make sense for the long term. Still, they could limit upside if comparable-sales growth slows during the second half, particularly after Target's earnings multiple expanded sharply following its first-quarter report.
Turnaround Faces A Tougher Test
Target has stepped up partnerships and product launches to generate customer interest. Recent initiatives include collaborations with Pokémon, LoveShackFancy and Hollister, while Target Beauty Studio is set to roll out to more than 600 stores in August.
Still, Bank of America sees risks to the recovery. A slower turnaround in apparel and home could expose Target to heavier competition and promotional pressure. Competitive food and beverage pricing could also limit market-share gains.
The valuation adds another hurdle. Bank of America's base case points to only about 4% earnings growth in fiscal 2028 as Target cycles strong first-half sales trends and loses favorable margin comparisons. The firm's $124 price forecast is based on 14 times estimated fiscal 2027 earnings.
Bank of America said an upside scenario could involve a roughly 16-times earnings multiple and about $10 in fiscal 2028 earnings per share. Even so, the analyst believes the current risk-reward remains challenging after Target's strong recent run.
TGT Price Action: Target shares were up 0.90% at $153.65 at the time of publication on Wednesday. The stock is trading near its 52-week high of $154.88, according to market data.
