Will Target Stock Recover To Highs Seen Prior To Inflation Shock?

Target (NYSE: TGT), the third-largest discount chain in the U.S. after Walmart
WMT
and Costco, currently trades at $132 per share, around 51% below its level of $266 seen on November 16, 2021 (pre-inflation shock high), and has the potential for sizable gains. TGT saw its stock trading at around $139 in the middle of June 2022, when the Fed kept increasing rates, and now remains marginally below those levels. In comparison, the S&P 500 gained about 20% during this period. Target’s
TGT
stock hasn’t seen much improvement because the retailer continues to have many headwinds. The company’s comparable-store sales were up a disappointing 1% in Q1 2023, mainly thanks to softness in areas like home furnishings and decorations. Customer traffic rose at the same sluggish rate. In addition, some consumers are boycotting Target to punish the company for displays and merchandise that support certain social communities. There is no denying that Target finds itself in culture wars on social media, which is affecting its brand. Still, we believe that these roadblocks will likely be short lived and the company will recover its prior earnings power thanks to the combination of its rising prices, current lower inventory, and slowing cost inflation.

Returning to the pre-inflation shock level means that Target will have to gain about 120% from here. While it has the potential to recover to those levels, we estimate Target’s Valuation to be around $171 per share, about 30% above the current market price. Our detailed analysis of Target’s upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022 and compares these trends to the stock’s performance during the 2008 recession.