After Earnings, Is Target Stock a Buy, a Sell, or Fairly Valued?

Target released its first-quarter earnings report on May 21, 2025. Here’s Morningstar’s take on Target’s earnings and stock.

Key Morningstar Metrics for Target

• Fair Value Estimate: $123
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Medium

What We Thought of Target’s Q1 Earnings

Target’s revenue declined 3.0% in the first quarter, underpinned by a 3.8% drop in comparable sales. Transaction count and average ticket declined by 2.4% and 1.4%, respectively. Profits were pressured as adjusted operating margin fell 160 basis points to 3.7% and adjusted earnings per share dropped 36.0% to $1.30.

Why it matters: Target continues to grapple with intense competition and deteriorating consumer confidence. Management also cited a negative reaction to its rollback of diversity, equity, and inclusion initiatives, but we think the former factors were more significant drivers behind its recent performance.

• Target’s merchandise sales declined 3%, primarily because of soft demand in discretionary categories. Indeed, sales of apparel, accessories, hardlines, and home furnishings collectively fell by 5%. Food, beverage, beauty, and household essentials held up better, collectively declining by just 1%.
• The retail landscape remains competitive as firms compete for foot traffic and digital sales. Management tracks market share performance across 35 broad product divisions, of which Target lost share in 20 categories. We expect stringent competition to pressure sales throughout 2025.

The bottom line: We lowered our fair value estimate on Target to $123 per share from $135 as the firm’s financial marks and guidance proved underwhelming. Still, investors’ sentiment seems overly pessimistic, and we view shares as undervalued.

• Management cut its adjusted EPS guidance for fiscal 2025 to between $7.00 and $9.00 from $8.80-$9.80. We brought our 2025 adjusted EPS forecast to $7.58 (from $9.01) and lowered our forecast for 2026 EPS to $8.44 from $9.77.
• Half of Target’s sales come from items that are sourced internationally, leaving the firm exposed to tariffs. While the impact that higher prices have on demand remains to be seen, management noted that its wide guidance range reflects the added uncertainty that tariffs offer.

Fair Value Estimate for Target

With its 4-star Morningstar Rating, we believe Target’s stock is undervalued compared with our long-term fair value estimate of $123 per share.

We lowered our fair value estimate on Target to $123 from $135 following the firm’s fiscal 2025 first-quarter earnings release. The retailer delivered underwhelming results as comparable sales slipped 3.8% (versus our forecast for a 2.0% decline) and adjusted EPS fell 36% to $1.30. Weak demand for discretionary items drove the bulk of the poor top-line performance, while higher frequency categories held up better. Amid deteriorating consumer confidence and uncertainty owing to potential tariffs, management cut its guidance for 2025 adjusted EPS to $7.00-$9.00 (from $8.80-$9.80). Indeed, we lowered our 2025 adjusted EPS forecast to $7.58 (from $9.01) to better align with the updated guidance and the precarious spending environment. We also expect results to remain under pressure in 2026, prompting us to reduce our 2026 EPS forecast to $8.44 (from $9.77). Our fair value estimate implies a forward fiscal 2025 adjusted P/E of about 16 times.

We continue to take a conservative view regarding Target’s long-term growth and margin trajectory. In early 2022, management set a long-term target for mid-single-digit top-line growth and an operating margin of at least 8%, though management has since pared back its margin outlook. While we are encouraged by Target’s investments over the past several years to build out its digital fulfillment capabilities and develop trendy brands to drive market share gains across product categories, we view its sales aims as ambitious, given the highly competitive retail industry. The days of rapid store expansion are behind Target, implying that most growth will be derived from comparable sales. From 2010 to 2019, Target posted average growth of 1.0% in both average ticket and transaction volume, and our 10-year forecast calls for 2.5% growth in comparable sales, coupled with modest growth via the expansion of smaller store formats in urban markets and on college campuses.

Read more about Target’s fair value estimate.

Economic Moat Rating

We do not believe Target warrants an economic moat. Despite its iconic and trendy brand, we view Target’s position in the hypercompetitive retail environment as rather ambiguous, which dilutes our confidence in the durability of its brand to drive consistent store traffic. Furthermore, we don’t see sufficient evidence to award Target a cost advantage. Although it is the nation’s seventh-largest retailer, we do not believe the firm exhibits inimitable scale across its individual product categories that would suggest it has amassed negotiating prowess over its supplier partners.

Target’s ambiguous position in the retail industry makes the firm susceptible to changing consumer preferences and online competition, in our view. We believe the retailer is at a crossroads, trying to balance an undifferentiated low-cost grocery portfolio that drives recurring traffic but doesn’t dilute the firm’s reasonably priced upscale, trendy product offerings in apparel and home goods. The firm’s unclear value proposition was evident, in our view, upon the retirement of Bob Ulrich in 2008, who successfully built Target into a leading retailer during his 14 years at the helm. Immediately following Ulrich’s retirement, however, a seemingly bureaucratic culture ensued, prompting years of underinvestment in stores, an unclear position in grocery, and costly strategic missteps (such as Target’s abysmal foray into Canada) that led to anemic trends in transaction volume. We note that comparable sales growth averaged a mere 1.5% from 2010 to 2016 (compared with growth in retail sales at warehouse clubs and superstores of 3.7%), while transaction volume was roughly flat.

Read more about Target’s economic moat.

Financial Strength

After four years in which it saw its top line balloon by nearly 40%, Target finds itself in a strong financial position with a conservative debt ratio (net debt/2024 EBITDA stood at 1.1 times) and ample liquidity. As of the end of the fiscal 2025 first quarter, the retailer had about $15 billion in debt and finance leases and held $2.9 billion in cash (plus $4 billion in an untapped revolving facility). This is consistent with its past mantra, as the company has prioritized operating with a strong balance sheet for more than two decades (net debt/EBITDA has averaged 1.6 times since 2000).

Target’s debt maturities do not appear particularly burdensome, as two thirds of the outstanding debt doesn’t come due until 2028 or later, and nearly one third of its debt is due after 2032. Furthermore, the retailer owns nearly 80% of its stores and land. We think Target’s vast underlying real estate portfolio may allow the firm to seamlessly raise capital at cheap rates via a sales leaseback or by collateralizing debt with its owned properties in the future.

Read more about Target’s financial strength.

Risk and Uncertainty

We assign Target a Medium Uncertainty Rating.

The rise of digital penetration serves as a formidable threat to Target’s traditional brick-and-mortar retail model. Price shopping has become rather seamless as consumers increasingly begin their product searches via digital channels, making Target susceptible to price competition amid an industry where consumers face virtually no switching costs. The retail industry’s preemptive leaders—Walmart WMT and Amazon.com AMZN—boast unrivaled scale and an impressive ability to invest in supply chain automation to mitigate costs. We expect Walmart and Amazon to serve as disinflationary forces in the industry for years to come, putting pressure on retailers that lack a differentiated product offering, vast scale, or a concentrated geographic focus.

Target’s business model also faces uncertainty because of its high mix of general merchandise such as apparel, electronics, and home furnishings, which we believe is most susceptible to digital competition. Many of these products are also sourced internationally, putting Target in the crosshairs as it pertains to tariffs. Further, the company lacks a clear positioning in grocery, in our view. We believe that Target’s food and beverage products add a nice element of convenience, which helps drive recurring foot traffic and allows the company to serve as a one-stop shop, but this offers minimal differentiation from both a product quality and cost perspective. While we are encouraged by the firm’s improvements in its higher-turnover product categories, we note that the size of these categories still pales in comparison to larger peers such as Walmart and Kroger KR.

Read more about Target’s risk and uncertainty.

TFT Bulls Say

• Given that its iconic brand attracts consumers with the promise of a more gratifying customer experience compared with other low-cost retailers, we are confident in Target’s ability to drive recurring foot traffic.
• Based on its performance during the pandemic, we view Target as a formidable online retailer, putting to rest many concerns about its ability to compete in a digital retail environment.
• Target is poised to benefit from the continued decline of mall-based competition and department stores, which will drive strong growth in comparable sales.

TGT Bears Say

• Target lacks the scale and differentiation to drive significant market share across its product categories, since its product offerings lack a clear value proposition.
• Despite being the nation’s seventh-largest retailer, Target must constantly invest in cost-saving initiatives, product innovation, and store renovations just to keep up with behemoths Walmart and Amazon.
• Target’s higher-margin discretionary product categories, such as apparel and home furnishings, are susceptible to losing market share via digital retail penetration, which could weaken the firm’s margins.

This article was compiled by Jacqueline Walker.