Should You Own Target Stock Right Now?

Key Takeaways:

• The 2-Minute Valuation Model values Target stock at $135 per share in 2 years.
• That’s a potential 44% upside from today’s price of around $94 per share.
• Target stock is trading at its lowest P/E ratio in over a decade at just 10.3x forward earnings.
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With recession fears resurfacing, value investors are looking for quality companies trading at a discount.

Target Corporation (TGT) has emerged as one of the most compelling opportunities in retail today. The stock has fallen by more than 60% from its pandemic-era highs as consumers have reduced their discretionary spending and competition has intensified.

However, Target’s current valuation suggests the market has become excessively pessimistic about the company’s long-term prospects.

Here’s why Target could deliver above-average returns for patient investors willing to look beyond short-term challenges.

Here’s our detailed valuation analysis.

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What is the 2-Minute Valuation Model?

Three core factors drive a stock’s long-term value:

1. Revenue Growth: How big the business becomes.
2. Margins: How much the business earns in profit.
3. Multiple: How much investors are willing to pay for a business’s earnings.

Our 2-Minute Valuation Model uses a simple formula to value stocks:

Expected Normalized EPS * Forward P/E ratio = Expected Share Price

Revenue growth and margins drive a company’s long-term normalized earnings per share (EPS), and investors can use a stock’s long-term average P/E multiple to get an idea of how the market values a company.

Why Target Stock Looks Undervalued

Forecast

Based on the EPS growth chart, Target is projected to experience steady earnings growth over the next few years.

The company’s normalized EPS is expected to increase from $8.86 in fiscal 2025 (ended in January 2025) to $10.14 by fiscal 2028, representing an annual growth of 4.6% over this period.

While this growth rate is modest, it’s essential to consider that Target is already a mature company. A 3-4% annual earnings growth rate is respectable for a retailer of Target’s size and market position.

This earnings growth for Target stock is likely to be driven by:

• Deep Value Opportunity: Target is trading at just 10.3x forward earnings, making it one of the most attractively valued quality retailers.
• Dividend Stability: Target is a dividend aristocrat with a 50+ year history of consecutive dividend increases. The current yield is attractive for income investors.
• Operational Improvements: Target is focusing on inventory management and store efficiency to improve profitability even in a challenging retail environment.
• E-commerce Growth: Target continues to invest in its digital capabilities and same-day services, which have become increasingly important growth drivers.
• Consumer Resilience: As inflation moderates and real wages rise, consumer spending power may increase, benefiting retailers like Target.

View Target’s full analyst estimates (It’s free) >>>

Is TGT Stock a Value Buy?

As shown in the historical P/E chart, Target currently trades at approximately 10.3x forward earnings, which represents:

• A 40% discount to its 5-year average P/E ratio of 17.5x
• A 62% discount to its peak valuation of 26.9x
• One of the lowest valuations Target has traded at in the last five years

For our analysis, we’ll use a conservative 12.5x P/E multiple, which is still below Target’s historical average but accounts for some recovery in market sentiment.

Fair Value of TGT Stock

Using our 2-Minute Valuation Model and applying a conservative approach:

• Conservative 2028 EPS estimate: $10.14
• Conservative forward P/E multiple: 12.5x
• Projected Dividends over the next 2 years: $9

Expected Normalized EPS ($10.14) * Forward P/E ratio (12.5x) + Dividends ($9) = Expected Share Price ($135)

The 2-year expected TGT stock price we would get from this valuation is $135 per share.

With Target stock currently trading at around $93.78, this implies a potential upside of approximately 44% over the next two years or an annualized return of about 20%.

Keep in mind, this is just a valuation exercise, and we don’t know for sure what the stock’s price will be in the future.

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What is the Target Price for Target Stock?

Analysts have an average price target of around $130 per share for TGT stock, indicating they see a nearly 39% upside for the stock from its current levels.

It’s clear that analysts also think the retail stock is undervalued today:

Risks to Consider

While our valuation suggests meaningful upside for Target, investors should be aware of several risks:

• The retail landscape remains intensely competitive, with Amazon, Walmart, and other players constantly innovating.
• Any deterioration in consumer spending could impact Target’s sales and margin recovery.
• Target’s turnaround depends on the successful execution of its strategic initiatives.
• If Target’s P/E ratio remains depressed, the stock may not reach our target price even if earnings grow as expected.

TIKR Takeaway

Target stock appears significantly undervalued based on both historical metrics and forward earnings projections. With a potential return of nearly 44% over the next two years, Target offers an attractive opportunity for value investors willing to be patient through retail industry challenges.

The market seems to be overlooking Target’s strong brand, loyal customer base, and operational improvements while focusing excessively on near-term headwinds. This disconnect between price and value creates an opportunity for long-term investors.

Is Target stock a buy over the next 24 months? Use TIKR to check the stock’s analyst price targets and growth forecasts to see if the stock is undervalued today.

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Disclaimer:

Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!