Target is yielding 4.2% with a P/E ratio of around $10,000.
Sales have been falling for three years, but a new CEO will take the reins next week.
Analysts see a return to top-line and bottom-line growth at Target in each of the next three years.
10 stocks we like better than Target ›
Choose a timeline… almost any timeline – and Aim(NYSE: TGT) has been left behind in the market. Shares of the discount retailer have fallen 20%, 33% and 41% over the past one-, three- and five-year periods, respectively. Wall Street has taken a shot at Target.
The recent period in which Target succeeds in the market is the shortest. Retail stock has soared 11% so far this year, ahead of more than 80% of the rest S&P 500 components. Speaking of its merit as an undervalued investment, among the S&P 500 stocks that have posted double-digit percentage gains this young year, only four have a P/E ratio lower than Target’s trailing multiple of 13.
The cheap and stylish retailer. is cheap. It’s also starting to feel chic. Can its early momentum in 2026 make the stock a winner for years to come? Let’s take a look at where Target stock could be in three years. Spoiler alert: Target stock is unlikely to lose another third of its value between now and early 2029, as it has over the past three years.
Image source: Getty Images.
I don’t want to underestimate the bearish scenario that got Target to where it is today. The chain has earned many of the falls it has accumulated in recent years. Every retailer has its mistakes, and even when Target was ascending — as it largely was for decades up until five years ago — it proved deadly from time to time. There was a data breach in 2013 that potentially affected 110 million customers. There have been calls about products and decisions to purchase from a store that have failed to resonate with their buyer base. Target survived the setbacks because they were few and far between.
The last few years have been difficult. Target made a couple of politically charged bets. It once stocked merchandise that celebrated cultural diversity. He was a retail leader on the front lines of the DEI initiative. When faced with backlash and calls for a boycott from the right, he backed down. This only provoked violent reactions and calls for boycotts from the left. Instead of pandering to one side of the political spectrum, Target worked to alienate both. He can recover, but the damage has already been done.
After net sales rose post-pandemic in 2020 and 2021, growth slowed sharply in 2022. It’s only gotten worse. Net sales are now declining for the third year in a row, falling 1.7% through the first nine months of the current fiscal year that ends at the end of this week. The same Target that historically was gaining market share is now losing it.
Target’s digital sales are slowly increasing, but that just means business is much worse at the store level. Compensation at brick-and-mortar stores has decreased 4.2% during the first nine months of the fiscal year. The prognosis may seem bleak, but isn’t the situation that bad before a company starts to hit rock bottom?
Target is not satisfied with its poor performance. It has committed to more than doubling the number of new items hitting its shelves from what it introduced a year ago. It is emphasizing value at the lower end of its prices, particularly in food and beverages, sacrificing margins in the short term to attract alienated customers.
There is even a big change at the top. Incoming CEO Michael Fiddelke will take over next week. He’s a long-time Target executive, but he’s willing to shake things up like an Etch to Sketch to get a fresh start.
The chain operator that investors are turning to today is broken but has a solution. Like its stores, the stock is cheaper than before. Targeting $7 to $8 a share in adjusted earnings for the fiscal year ending this week, according to its latest guidance, Target’s stock trades at 13 to 15 times earnings. The mass-market retailer is also keen to reward patient shareholders. This poor guy is actually a Dividend King, having increased his quarterly dividend rate for 54 consecutive years. Its current dividend yield of 4.2% is above that of the highest-yielding money market funds and is sustainable in the near term.
The next three years offer the opportunity to take small steps forward that can become bigger steps if recovery efforts work. Analysts see a return to modest revenue growth in fiscal 2026, thanks to improving profitability. They estimate Target’s adjusted earnings per share will reach $7.70, $8.19 and $8.67 over the next three years, respectively. Target stock is trading at 12 times its projected fiscal 2028 earnings, and Wall Street professionals are only cautiously optimistic. The results can be even better if the new leadership is successful.
Expecting the stock to double or triple over the next three years would be aggressive. What if the stock rose 50% in that time, trading at an earnings multiple of around 10 based on current analyst projections? It is a multiple that would be more than justified for a Target that is growing again. Add to this a dozen generous quarterly dividends that will likely have increased for 57 years in a row by then, and the total return would be closer to 57%. This should be more than enough to beat the market. Laggards can become climbers…and leaders.
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Rick Munarriz has positions at Target. The Motley Fool has positions and recommends Target. The Motley Fool has a disclosure policy.
Where will the target stocks be in 3 years? was originally published by The Motley Fool
