Investors cheered Target's (TGT 0.36%) strong fourth-quarter results -- so much so that its stock price surged nearly 10% on the news. Could these gains be the beginning of a further rally in the retail-giant's shares? Let's see what some Wall Street analysts have to say.
Deutsche Bank analyst Krisztina Katai reiterated her buy rating on Target's stock. She now sees the department-store chain's share price rising roughly 57% to $353, up from a prior estimate of $305.
Katai was pleased with Target's ability to manage rising costs brought by a tight labor market and industrywide supply-chain challenges. Although the retailer's gross margin declined to 25.7% from 26.8% in the year-ago quarter, its operating margin improved to 6.8% from 6.5%.
RBC analyst Steven Shemesh was also relieved to see Target's profit margins hold up better than many investors expected. "Heading into the print, margins were the big concern -- but it's now clear that the company has more control over costs than the Street gave it credit for," he said. Shemesh has an outperform rating on the company's shares.
Meanwhile, D.A. Davidson analyst Michael Baker applauded Target's upbeat profit forecast. Management's guidance calls for high-single-digit growth in adjusted earnings per share in fiscal 2022, even as the company invests aggressively to upgrade its stores and strengthen its e-commerce capabilities. "This shows that the operational improvements, which were taking hold prior to the pandemic, along with the share gains over the last two years, are proving to be sustainable," Baker said.
Image source: Getty Images.
Is Target's stock a buy?
Target has done an admirable job of overcoming pandemic-related challenges. Customers are flocking both to its stores and online channels. This can be seen in the 12% growth in Target's store traffic and 45% surge in its same-day services -- which include its delivery and curbside-pickup operations -- in fiscal 2021.
Additionally, Target is becoming more efficient, which is allowing it to strengthen its operating margins, despite significant macroeconomic cost pressures.
For all these reasons, Target appears set to continue to reward investors in the coming years. That makes its stock a solid buy today.
