Target (NYSE:TGT) was upgraded to Buy by HSBC, with analyst Joe Thomas raising his price target to $190 from $125 per share after the retailer’s second-quarter results showed higher comparable sales and customer traffic.
Thomas said the latest results supported HSBC’s view that Target’s recovery was being driven by increased customer visits rather than higher average transaction values.
“Q2 results support the view that a traffic-driven recovery is underway,” Thomas wrote in a note to investors.
Comparable Sales Rise 3.8%
Target reported a 3.8% increase in comparable sales during the second quarter, including a 2.7% rise in sales originating from stores.
According to HSBC, underlying profit and earnings per share were approximately 5% above consensus expectations.
Thomas said customer traffic was the primary contributor to the sales increase.
“Growth was driven primarily by footfall rather than higher ticket values,” Thomas said. “This indicates to us that Target is rebuilding customer traffic and that its store base is not being materially cannibalised.”
HSBC viewed the traffic figures as evidence supporting its assessment that Target’s operational recovery was progressing.
HSBC Sees Scope for Earnings to Exceed Its Forecasts
HSBC said it sees the “potential for earnings forecasts to be exceeded in the short and medium term.”
The bank noted that Target’s two-year comparable sales growth rate stood at 1.7% for the year to date.
HSBC’s estimates require two-year comparable sales growth of only 0.5% during the second half for Target to meet the assumptions incorporated into the bank’s full-year forecasts.
The comparison led HSBC to identify potential upside to its current earnings estimates if recent sales trends continue.
Price Target Raised to $190 From $125
Alongside the upgrade to Buy, HSBC increased its Target price objective to $190 per share from $125.
The bank based its valuation on a multiple of 18 times its revised fiscal 2027 estimated earnings per share of $10.61.
HSBC said the 18-times multiple is in line with Target’s five-year historical average price-to-earnings multiple.
“Shares look inexpensive if we include potential earnings upside,” Thomas concluded.
The upgraded rating and higher price target reflect HSBC’s assessment of Target’s second-quarter sales trends, customer traffic and the potential for earnings to come in above the bank’s current estimates.
Target stock price
