Down 13%, What’s Next For Target’s Stock?

March 6th, 2025 by Trefis Team

Target’s (NYSE: TGT) stock has taken a hit, falling 6% in the last week, extending its year-to-date losses to 13%, while the S&P 500 index experienced a relatively smaller decline of 0.7% YTD. Target exceeded Wall Street’s Q4 2024 (ended Feb 1) expectations, but its guidance raised concerns over consumer spending resilience. Weak February sales, persistent consumer caution, and looming tariff concerns are clouding Target’s Q1 profit outlook, with the retailer bracing for significant year-over-year (y-o-y) profit pressure. The company’s management noted that President Trump’s 25% tariffs on Mexican imports could also force the company to raise prices on produce like bananas, strawberries, and avocados in the coming days.

Target’s Q1 2025 guidance is cautious, echoing Walmart’s (NYSE: WMT) concerns about a slower-than-expected start to the year. For FY 2025, Target anticipates modest 1% sales growth and nearly flat comparable sales, with earnings per share projected between $8.80 and $9.80. This outlook follows a marginal decline in FY2024, where revenues totaled $106.6 billion and earnings came in at $8.86. The retailer’s shift toward  lower-margin essentials, driven by inflation, high interest rates, and intense competition, negatively impacted FY’24 results.

Target’s Q4 results reflected a challenging retail environment, with revenues declining 3% y-o-y to $31 billion. While total comparable sales rose 1.5%, this was driven by an 8.7% surge in digital sales, which offset a 0.5% decline in store sales. Gross margin contracted 40 basis points to 26.2% due to increased promotional activity and clearance markdowns, while operating margin fell 110 basis points to 4.7%. Despite achieving $2 billion in efficiency savings over two years, the operating margin compression is a concern. Q4 GAAP and Adjusted EPS dropped 19% y-o-y to $2.41. Looking ahead, Target’s sales trends may remain sluggish in the near term, driven by weak demand for certain product lines, which could keep its shares under pressure.

We forecast Target’s Revenues to be $108.2 billion for the fiscal year 2025, up marginally y-o-y. Given the changes to our revenues and EPS forecast, we have revised our Target’s Valuation to $120 per share, based on a $9.20 expected EPS and a 13.1x P/E multiple for the fiscal year 2025. This means that our estimate is in line with the current market price. The stock is still down significantly from the all-time high (~$262) it set in late 2021.

Target is expanding its offerings through strategic partnerships with Champion and Warby Parker, set to launch in the second half of 2025. These collaborations aim to boost sales, attract new customers, and enhance competitiveness with exclusive sportswear and eyewear lines. Additionally, Target saw significant traction in its same-day delivery service, with over a 25% increase in Q4, driven by its Target Circle 360 subscription tier. This tier offers unlimited free same-day delivery for orders over $35, along with free two-day shipping and other perks, for an annual fee of $99. As the company looks to further enhance its loyalty program, it is exploring new benefits to lure customers away from Amazon and Walmart.

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