Evercore ISI maintains Target stock In Line with $100 price target

On Wednesday, Evercore ISI maintained its In Line rating on Target Corporation (NYSE:TGT) with a steady price target of $100.00, following the company’s first-quarter performance that fell short of market expectations. Target reported a 3.8% decrease in comparable sales, which was more significant than the predicted 2% decline, and a gross margin reduction of 70 basis points year-over-year. The company’s revenue of $23.8 billion, which was a 2.8% drop from the previous year, did not meet the anticipated $24.22 billion forecast, missing estimates by $400 million. According to InvestingPro analysis, Target’s stock appears undervalued despite its year-to-date decline of 26%, with the company maintaining strong fundamentals including a P/E ratio of 11x and an attractive free cash flow yield of 10%.

The shortfall was attributed to weaker sales across discretionary categories such as Apparel and Home, which declined by mid to high single digits. This downturn was noted to be sharper than that of Target’s competitors, with Walmart (NYSE:WMT)’s general merchandise only slightly negative and other retailers like Five Below (NASDAQ:FIVE) and Dollar Tree (NASDAQ:DLTR) posting positive comps. Target’s performance in non-discretionary categories also lagged behind the market, with only a marginal 0.8% year-over-year increase in Food and Beverage sales and a 4% decline in Household Essentials, despite the grocery industry growing by more than 3%. Still, InvestingPro data shows Target remains a prominent player in the Consumer Staples Distribution & Retail industry, with annual revenue of $106.6 billion and a market capitalization of $44.6 billion. For deeper insights into Target’s competitive position and detailed financial analysis, subscribers can access the comprehensive Pro Research Report, available exclusively on InvestingPro.

Digital sales growth and same-day delivery services were a bright spot for Target, with digital sales increasing by 4.7% year-over-year and same-day services surging by 35%. However, the Beauty category remained stagnant at $3.1 billion. The report highlighted that inflation is influencing spending patterns among low to middle-income consumers, and Target is experiencing market share challenges from competitors such as Walmart, Costco (NASDAQ:COST), and Amazon (NASDAQ:AMZN), which are projected to capture over 50% of the growth in U.S. retail sales this year.

Target’s gross margins stood at 28.2%, falling short of the Street’s estimates by 30 basis points and reflecting a 70 basis point decline from the previous year. This was primarily due to higher markdown rates and increased costs associated with digital fulfillment and supply chain expenses, which were driven by a higher penetration of digital sales and the onboarding of new supply chain facilities. The company’s selling, general, and administrative (SG&A) expenses, excluding a litigation settlement gain, increased by 70 basis points year-over-year to 21.7%, likely due to ongoing investments in employee pay and benefits. Target’s earnings before interest and taxes (EBIT) margin stood at 3.7%, a decrease from 5.3% last year and below the 4.6% margin expected by analysts.

In other recent news, Target Corporation reported a significant miss in its Q1 2025 earnings, with adjusted earnings per share (EPS) at $1.30, falling short of the projected $1.65. Revenue also came in below expectations at $23.85 billion, compared to the forecasted $24.35 billion. Despite the disappointing results, Target maintains its full-year EPS guidance between $7 and $9, with expectations of a low single-digit sales decline for the remainder of the year. The company is focusing on strategic initiatives, such as launching 10,000 new summer items and expanding brand collaborations, to bolster sales. In light of these challenges, William Blair’s analyst, Dylan Carden, maintained an Outperform rating on Target, citing the company’s effective handling of current market conditions. Carden highlighted Target’s strong inventory management and the company’s ability to navigate market uncertainties. The analyst also noted that Target’s valuation reflects its consistent execution and potential for mid-single-digit earnings growth. Despite potential risks, such as inventory surplus and tariff impacts, Target’s strategic efforts and market position suggest resilience in a challenging environment.

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