Pick a timeline -- almost any timeline -- and Target (TGT 1.61%) has been a market laggard. Shares of the discount retailer have fallen 20%, 33%, and 41% over the past one-, three-, and five-year periods, respectively. Wall Street has taken its shots at Target's bull's-eye.
The one recent stretch of time in which Target is a market thumper is the shortest. The retail stock has soared 11% year to date, ahead of more than 80% of the other S&P 500 components. Speaking to its merit as an undervalued investment, among the S&P 500 stocks that have posted double-digit percentage gains this young year, only four have a lower P/E ratio than Target's trailing multiple of 13.
The cheap chic retailer is cheap. It's also starting to feel chic. Can its early momentum in 2026 make the stock a winner over the next few years? Let's take a look at where Target shares might be three years from now. Spoiler alert: Target stock is unlikely to lose another third of its value between now and early 2029, as it has over the last three years.
Image source: Getty Images.
Target practice
I don't want to understate the bearish scenario that got Target to where it is today. The chain has earned many of the downticks that it has collected in recent years. Every retailer has its misses, and even when Target was ascending -- as it largely was for decades until five years ago -- it proved mortal every so often. There was the 2013 data breach that potentially impacted 110 million customers. There have been merchandise calls and shop-in-a-shop decisions that have failed to resonate with its shopper base. Target survived through the stumbles because they were few and far between.
The past couple of years have been rough. Target took a pair of politically charged gambles. It once stocked merchandise that celebrated cultural diversity. It was a retail leader on the DEI initiative front. When it faced backlash and boycott calls from the right, it pulled back. This only led to backlash and calls for boycotts from the left. Instead of pleasing one side of the political spectrum, Target whipsawed itself into alienating both. It can recover, but the damage has been done.
After net sales surged following the pandemic in 2020 and 2021, growth decelerated sharply in 2022. It has only gotten worse. Net sales are now declining for the third year in a row, sliding 1.7% through the first nine months of the current fiscal year that ends later this week. The same Target that was historically gaining market share is now bequeathing it.
Target's digital sales are inching higher, but that only means that business is that much worse at the store level. Comps at the physical stores have declined 4.2% through the first nine months of the fiscal year. The prognosis may seem bleak, but isn't that just how dire a situation looks before a business starts to bottom out?
NYSE: TGT
Key Data Points
Walking through the ruins
Target isn't settling for its subpar performance. It has committed to more than doubling the amount of new items arriving on its shelves from what it introduced a year ago. It's emphasizing value at the low end of its price points -- particularly on food and beverage items -- sacrificing margins in the near term to woo alienated customers back.
There's even a big change at the top. Incoming CEO Michael Fiddelke takes over next week. He's a longtime Target exec, but he's willing to shake things up like an Etch a Sketch for a fresh start.
The chain operator that investors are approaching today is broken but fixable. Like its stores, the shares are cheaper than they were before. Targeting $7 to $8 a share in adjusted earnings for the fiscal year that ends this week, according to its latest guidance, Target's stock is trading at 13 to 15 times earnings. The mass-market retailer is also willing to reward patient shareholders. This pauper is actually a Dividend King, boosting its quarterly dividend rate for 54 consecutive years. Its current dividend yield of 4.2% is above that of the highest-yielding money market funds, and it's sustainable in the near term.
The next three years offer the opportunity for baby steps forward that can turn into bigger steps if the turnaround efforts click. Analysts see a return to modest top-line growth in fiscal 2026, on improving profitability. They see Target's adjusted earnings per share clocking in at $7.70, $8.19, and $8.67 over the next three years, respectively. Target stock is trading for 12 times its fiscal 2028 projected earnings, and Wall Street pros are only cautiously optimistic. The results can be even better if new leadership succeeds.
Expecting the stock to double or triple in the next three years would be aggressive. How about the stock rising 50% in that time, trading at a trailing earnings multiple in the high teens based on current analyst projections? It's a multiple that would be more than justified for a Target that's growing again. Throw in a dozen generous quarterly dividends that will likely have increased for 57 years in a row by then, and the total return would be closer to 57%. This should be more than enough to beat the market. Laggards can become ladders -- and leaders.
