Target Upgraded to Buy at HSBC on Signs of Footfall-Driven Recovery

HSBC has upgraded Target Corp. (TGT) to a Buy rating, significantly increasing its price target to $190 from a previous $125. The bank's analysts pointed to growing evidence that the retailer's turnaround strategy is taking hold, led by a recovery in customer footfall.

Turnaround Gaining Momentum

In a note to investors on Wednesday, HSBC analyst Joe Thomas stated that a "traffic-driven recovery is underway." The upgrade is based on strong second-quarter results which, according to the bank, provided clear evidence that Target's recovery is building momentum.

HSBC highlighted that the growth was primarily fueled by an increase in customer traffic rather than higher average ticket values. "This indicates to us that Target is rebuilding customer traffic and that its store base is not being materially cannibalised," the analyst wrote.

Key Q2 Performance Metrics

The bank's confidence is supported by several key figures from Target's recent earnings report:

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• Overall comparable sales rose 3.8%.
• Store-originated comparable sales increased 2.7%.
• Underlying profits and earnings per share (EPS) were approximately 5% ahead of consensus estimates.

HSBC noted that with the year-to-date two-year comparable sales growth rate at 1.7%, its full-year assumptions require only 0.5% growth in the second half, suggesting there is potential for the company to exceed earnings forecasts.

Valuation and Outlook

Looking ahead, HSBC believes Target shares appear "inexpensive" when factoring in potential earnings upside. The bank's new $190 price target is based on an 18x price-to-earnings multiple applied to its revised fiscal year 2027 EPS estimate of $10.61.

This valuation multiple is in line with Target's five-year average historical P/E ratio, according to the note. The analyst concluded that there is "potential for earnings forecasts to be exceeded in the short and medium term."