On Tuesday, Target (NYSE:TGT) was upgraded by analysts at Citi, who changed their rating from Neutral to Buy. Alongside the rating upgrade, the firm has set a new price target for Target shares at $180.
Citi's decision to elevate Target's status to Buy reflects a positive outlook on the company's future, particularly regarding its potential to improve EBIT margins in the fiscal year 2024.
"We believe TGT has emerged as one of the winners within the retail landscape with an opportunity to improve EBIT margin in the years to come (particularly in F24)," said analysts at Citi.
The upgrade comes after a period of uneven performance through 2022 and 2023. However, analysts at Citi highlight that Target is now on a more stable path.
The company's well-managed inventory levels and the expectation of more favorable sales comparisons starting in the second quarter of 2024 contribute to this outlook. Additionally, analysts at Citi found Target's conservative guidance reassuring.
Analysts at Citi pointed out that the market may have overreacted to the uncertainties in the consumer environment, which has led to attractive opportunities in retailers that offer value and have unique chances to enhance margins. Target checks both these boxes, offering value to consumers and possessing opportunities to increase margins, according to analysts at Citi.
The timing of the upgrade is also influenced by the stock's recent performance, which saw a decline of 11% from its peak in April. With Target's stock trading at a forward EV/EBITDA multiple of approximately 9 times, which is below the valuation of many of its large-cap peers, analysts at Citi believe that the risk/reward profile for investors is now favorable.