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Thursday, 10/12/2023 8:19:42 AM

Thursday, October 12, 2023 8:19:42 AM

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Target (TGT) upgraded at BofA on improved risk/reward outlook after stock selloff
By: Investing | October 12, 2023

Bank of America analysts upgraded Target (NYSE:TGT) stock to Buy from Neutral with a price target raised by $15 to $135 per share.

The analysts argue that a recent stock selloff creates an attractive buying opportunity. Target shares are down about 20% in the last 3 months.

“With the stock trading at just 12x 2yr forward earnings, we believe the risk/reward outlook has improved and see catalysts that could drive upside to our modestly above-consensus EPS estimates as well as P/E multiple expansion,” the analysts said in a note.

Bank of America's forecast for the second half assumes a -5% decline in comparable sales, which is in line with Bloomberg Second Measure's observed credit and debit card sales and transactions, showing a low-single-digit percentage decrease year-to-date through October 1.

However, there is potential for observed transactions to improve sequentially following Target Circle Week, which ran from October 1 to October 7 and featured extra days and additional promotional items compared to the previous year.

The outlook suggests that traffic may continue to improve into the fourth quarter of 2023 as Target fully laps the previous year's inventory actions and apparel/home promotions through the third quarter and compares against a fairly rational promotional environment from the prior year.

Digital traffic is expected to benefit from the launch of Drive Up Starbucks (NASDAQ:SBUX) in the third quarter and returns in the first quarter. Net favorability and purchase consideration data from Morning Consult also indicate the possibility of ongoing traffic improvement.

“We see GM upside opportunities from: 1) freight & transportation cost recovery, 2) the non-recurrence of various inventory reduction costs LY, 3) the continued rollout and ramp up of flow centers and sortation centers, and 4) the shift back to more profitable in-store and same-day digital transactions (esp. Drive Up),” the analysts concluded.

TGT shares rose 2.4% premarket on the upgrade news.

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