<\/p>\n
Target\u2019s improving sales trends are giving investors more reason to believe the retailer\u2019s turnaround is taking hold, but Bank of America still sees a difficult setup for the stock heading into second-quarter earnings.<\/p>\n
Target (TGT) is scheduled to report results on Aug. 19, and expectations have climbed since its better-than-expected first quarter. The retailer posted 6.7% net sales growth and a 5.6% increase in comparable sales in the period, while adjusted earnings per share rose to $1.71 from $1.30 a year earlier.<\/p>\n
That momentum prompted Target to raise its full-year sales outlook in May. Management now expects net sales growth of around 4% and adjusted EPS near the high end of its previous $7.50 to $8.50 range.<\/p>\n
Bank of America sees more improvement coming in the second quarter, though the firm is less convinced the recent stock rally leaves enough upside for investors.<\/p>\n
BofA raises Target estimates ahead of earnings<\/p>\n
In a note shared with TheStreet, BofA analysts said Target has shown an \u201cimpressive improvement\u201d in sales under new leadership as broader consumer spending remains resilient.<\/p>\n
The firm raised its second-quarter and full-year EPS estimates by roughly 3%, forecasting quarterly adjusted EPS of $2.34 and fiscal-year EPS of $8.84. BofA also expects Target\u2019s comparable sales to rise 2.5% in the second quarter, slightly ahead of the 2.3% Visible Alpha consensus cited in the note.<\/p>\n
Margins could provide another bright spot. BofA forecasts gross margin expansion of about 90 basis points, helped by an easier merchandise-margin comparison and less tariff pressure. That estimate is about 20 basis points better than consensus.<\/p>\n
Those estimates come after Target\u2019s first-quarter gross margin improved to 29% from 28.2% a year earlier. The company attributed the increase to improved supply-chain productivity, growth in advertising and other non-merchandise revenue, and lower markdown rates, partially offset by higher product costs.<\/p>\n
BofA analysts said Target has shown an \u201cimpressive improvement\u201d in sales under new leadership as broader consumer spending remains resilient.<\/p>\n
Kevin Carter via Getty Images<\/p>\n
BofA still sees downside for Target stock<\/p>\n
Stronger estimates did not change BofA\u2019s broader view of the stock.<\/p>\n
The firm reiterated its Underperform rating and raised its price objective to $124 from $110. With Target shares at $152.29 when the note was published, the new target still implied roughly 19% downside.<\/p>\n
BofA said Target was trading at about 17 times its fiscal 2027 earnings estimate, up from roughly 14 times following first-quarter results. The analysts based their new price target on a 14-times multiple, which they said is roughly in line with Target\u2019s historical valuation.<\/p>\n
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The concern shifts to what happens after the near-term recovery. BofA estimates fiscal 2027 EPS of $8.46, which would represent about 4% growth as Target begins cycling stronger sales comparisons and loses some of the easier margin comparisons helping results now.<\/p>\n
The analysts said an upside case could support roughly $10 in fiscal 2027 EPS and a 16-times multiple, but they also pointed to risks from a slower apparel and home recovery and tougher competition in food and beverages.<\/p>\n
Target’s spending plans add another variable<\/p>\n
Target is investing heavily to support its turnaround, which could put more pressure on expenses if sales momentum slows.<\/p>\n
The company plans about $1 billion in incremental operating investment this year, including hundreds of millions of dollars for store payroll and training. Target is also increasing capital spending by more than $1 billion to roughly $5 billion, with investments aimed at new stores, remodels, technology, and supply-chain improvements.<\/p>\n
BofA described those investments as the right move for the longer term, but warned that SG&A growth remains a wildcard. Target\u2019s first-quarter adjusted SG&A rate already increased to 21.9% from 21.7% a year ago as higher compensation, training, marketing, and project-related spending offset some of the benefit from stronger sales.<\/p>\n
That leaves Target entering earnings with a stronger business backdrop and a tougher stock setup. BofA has become more optimistic about the retailer\u2019s operating recovery, but its $124 target suggests the firm believes investors may already be paying too much for that progress.<\/p>\n
Related: Target makes big AI move that points to a new retail reality<\/p>\n
#BofA #sends #warning #Target #stock #earnings<\/p>\n","protected":false},"excerpt":{"rendered":"
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