Target’s Double Bottom Might Have Just Been Confirmed

Key Points

• Target shares have been hitting higher lows since the summer.
• This week's earnings report ripped the band-aid off. 
• Piper Sandler just gave shares a $190 price target. 

The jury is still out, but it’s starting to look like shares of Target Corporation NYSE: TGT will go up from here over the next few weeks. It has certainly been a wild couple of days as the bulls and the bears have fought for control of the $75 billion retailer. The company's Q3 earnings, released during the week, only added fuel to the fire. As the weekend gets set to start, the bulls will definitely be the happier of the two. 

Though the headline numbers from this week’s earnings report were mixed, the devil was in the details. Revenue was up just over 3% on the year and ahead of what analysts had been expecting for the Target stock forecast. However, a miss on the company’s earnings took the shine off that pretty quickly. Management lowered its forward guidance for the holiday season in light of the challenging economic environment.

Bullish Comments

CEO Brian Cornell hit a bullish tone when he said, "In the third quarter, our business delivered comparable sales growth of 2.7% and we saw unit share gains across all of our core merchandise categories. This performance demonstrates the durability of our business model which continues to serve our guests and drive loyalty despite the challenging economic environment.”

He flagged the softening impact that “inflation, rising interest rates and economic uncertainty” have had on the company’s sales and profit trends as shoppers tighten their purse strings in the face of a bleak winter. 

Despite all this, the initial reaction was vicious and brutal. Shares gapped down 16% on the open following the report’s release, which undid the previously promising pre-earnings rally. Positively for the bulls, shares rallied throughout the day and all through yesterday, too. As shares set to open up on Friday, it looks as if the initial drop was a snap reaction and one that investors have quickly reversed. 

Fresh Upgrade

The team at Piper Sandler wasn't afraid to upgrade shares in the aftermath of the report, a bullish vote of confidence that has done a lot to underpin the bid in shares. Piper Sandler upped its rating from "neutral" to "overweight," noting it had had a difficult 2022, but felt this was close to the bottom. In particular, it highlighted what feels like trough level EBIT margins. At a 0.8x 2023 EV/sales valuation, shares have started to look compelling. Piper’s price target of $190 points raised to about 20% upside from current levels, with the technical setup also aligning with the bulls camp. 

In June, shares had hit their lowest levels since the onset of the pandemic and came perilously close to breaking them during last month’s weakness — but they didn't. Instead, they set a higher low and have refused to stay below $150 since. There are undoubtedly fundamental headwinds for Target to navigate in the coming months but all signs point to shares moving higher from here rather than lower. If you believe in recovery rallies, especially when the worst-case scenario has already been priced in, you may not want to look further than Target this quarter.