Following Target Corp's (NYSE:TGT) better than expected earnings, Bank of America has hiked its profits and price targets, saying merchandising and brand enhancements should improve customers' perception of the value of offer from the retailer.
Shares in the company surged yesterday on the back of fourth-quarter earnings that beat Wall Street forecasts, up 57.6% year-over-year.For the full year, adjusted EPS was nearly 50% higher than in 2022 at $8.94, above estimates of $8.37.
BofA has raised its EPS forecast to $9.45 from $9.15, saying it continues to expect gross margin expansion as well as a comparable sales and traffic inflection in the fiscal second quarter driven by easing comparisons and the expected success of TGT's merchandising initiatives.
"We expect these benefits to be partially offset by expense deleverage, particularly in 1Q as we forecast a comp sales decline of (4%)."
Target's investments in same-day gave the company an early lead in the space, analysts wrote, but now it faces steeper competition today as many large retailers enhanced same-day offerings during Covid.
Enhanced offerings rolling out from April will see Target offer a paid membership option through its Target Circle 360 membership, which for $99 per year provides guests with free same-day delivery from Shipt.
"While increasing digital penetration could pressure Gross Margin, this could be offset by a corresponding increase in customer engagement (last year, Target Circle members spent 5x more than non-members)."
BofA reiterated its 'buy' rating and raised its price objective to $190 from $160.