Target's improving sales trends are giving investors more reason to believe the retailer's turnaround is taking hold, but Bank of America still sees a difficult setup for the stock heading into second-quarter earnings. Target (TGT) is scheduled to report results on Aug. 19, and expectations have climbed since its better-than-expected first quarter. The retailer posted 6.7% net sales growth and a 5.6% increase in comparable sales in the period, while adjusted earnings per share rose to $1.71 from $1.30 a year earlier.
That momentum prompted Target to raise its full-year sales outlook in May. Management now expects net sales growth of around 4% and adjusted EPS near the high end of its previous $7.50 to $8.50 range. Bank of America sees more improvement coming in the second quarter, though the firm is less convinced the recent stock rally leaves enough upside for investors.
In a note shared with TheStreet, BofA analysts said Target has shown an "impressive improvement" in sales under new leadership as broader consumer spending remains resilient. The firm raised its second-quarter and full-year EPS estimates by roughly 3%, forecasting quarterly adjusted EPS of $2.34 and fiscal-year EPS of $8.84. BofA also expects Target's comparable sales to rise 2.5% in the second quarter, slightly ahead of the 2.3% Visible Alpha consensus cited in the note.
Margins could provide another bright spot. BofA forecasts gross margin expansion of about 90 basis points, helped by an easier merchandise-margin comparison and less tariff pressure. That estimate is about 20 basis points better than consensus.
Those estimates come after Target's first-quarter gross margin improved to 29% from 28.2% a year earlier. The company attributed the increase to improved supply-chain productivity, growth in advertising and other non-merchandise revenue, and lower markdown rates, partially offset by higher product costs. Stronger estimates did not change BofA's broader view of the stock.
The firm reiterated its Underperform rating and raised its price objective to $124 from $110. With Target shares at $152.29 when the note was published, the new target still implied roughly 19% downside. BofA said Target was trading at about 17 times its fiscal 2027 earnings estimate, up from roughly 14 times following first-quarter results.
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