JPMorgan Takes Bullish Turn On Target, Says Retailer Underappreciated By Investors

Target Corporation TGT has shown strong sales growth and is getting no respect from investors, according to JPMorgan.

The Analyst

Christopher Horvers upgraded Target from Neutral to Overweight and raised the price target from $81 to $100. 

The Thesis

Target’s shares are undervalued and have been placed in the “lower end of the ‘middle bucket’ of retail, Horvers said — adding that he believes the company should be valued closer to the top of the group. (See his track record here.) 

Target has reported strong comparable sales and now has expanding operating income after three years of declines, the analyst said. But what tips the scales for JPMorgan are recent share gains in home and apparel, he said. Both categories were up in the first quarter and well above the growth rates of competitors in those aisles. 

Target’s overall comps were some of the best in the first quarter in large-cap retail, the analyst said. 

“As we’ve been saying since last fall, we prefer share gainers in light of our constrained view of the consumer in 2019,” Horvers said.

“The inflection in margin is real with the GM dilution per unit of ecommerce growth improving and cost control remains strong, which biases margins and valuation to the upside.”

On the subject of share price, the analyst said Target gets no respect.

“TGT is priced like the Rodney Dangerfield of large cap retail despite a robust dividend yield." 

Target doesn't need to outrun Amazon.com Inc. AMZN, in JPMorgan's view; it needs to outrun mall- and off-mall-based and structurally impaired peers, Horvers said. 

Price Action

Target shares were up 1.6 percent at $78.80 at the time of publication Thursday. 

Related Links

Target's Strong Q1, Guidance Send Shares Higher

Morgan Stanley Upgrades Target After Recent Pullback

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