Target shares have upside to $195: Wells Fargo

on Aug 1, 2022
  • Wells Fargo upgraded Target Corporation to "overweight" on Monday.
  • Analyst Edward Kelly is convinced that Target shares are still "oversold".
  • The stock (TGT) has already bounced nearly 20% off its low in mid-June.

Target Corporation (NYSE: TGT) has bounced nearly 20% off its low in mid-June but a Wells Fargo analyst says the stock is still “oversold” and, therefore, worth buying.

Target shares could jump another 20%

On Monday, Edward Kelly upgraded Target shares to “overweight” and raised his price target to $195 that translates to another 20% upside from here. In a note to clients, the analyst said:

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The sell off has gone too far, creating the opportunity to pick up a proven share gainer into an underappreciated earnings recovery at the right price.

He forecasts $12.70 a share in full-year earnings, much higher than the top end of the consensus at $11. Also on Monday, Fitch affirmed Target Corporation at “A”.

The big box retailer has lowered its profit outlook twice over the past three months. Still, Kelly’s bull case is for it to be a $220 stock.

Target shares are good risk/reward

The Wells Fargo analyst sees favourable risk/reward in Target shares down roughly 35% from their year-to-date high, even though the retailer is struggling with excess inventory.

Management’s decisive action should help protect pandemic share gains. TGT took the earliest and biggest margin hit in retail, suggesting relatively lower risk from here.

Kelly reiterated that “inventory” is not a Target-specific issue but one that’s shaking the industry at large. The next couple of quarters, therefore, could be challenging but the long-term story remains unchanged.

In June, the retailer raised its dividend to $1.08 a share – a 2.61% yield continues to be another compelling reason to own Target shares.  

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