Is TGT Worth Buying as Earnings Improve but Valuation Stays Elevated?

TGT's Earnings Outlook Is Moving Higher

Target raised fiscal 2026 net sales growth guidance to around 5% from around 4%. It also lifted adjusted earnings guidance to $9.90-$10.90 per share, including a $1.65-per-share benefit from second-quarter tariff refunds.

The improvement is not entirely tied to that refund. Excluding the tariff benefit, the midpoint of the updated earnings range is 75 cents above the midpoint of the prior $7.50-$8.50 guidance. The current fiscal-year earnings estimate also increased 24.5% over the past four weeks, reinforcing the improving earnings picture.

Target's Core Growth Is Becoming More Balanced

Second-quarter comparable sales increased 3.8%, driven mainly by a 3.6% rise in traffic. All six core merchandising categories posted year-over-year sales growth, giving the recovery broader support than a rebound in one or two areas.

Fun 101 delivered double-digit growth, while Food & Beverage and Beauty posted high-single-digit gains. Comparable digital sales rose 8.7%, and non-merchandise sales increased 20.1% as Roundel advertising, Target Plus and Target Circle 360 expanded. Apparel and home, however, were roughly flat.

TGT's Valuation Leaves Less Room for Error

TGT trades at 18.3X forward 12-month earnings, above its five-year median of 14.9X. The current multiple is still below the Zacks sub-industry's 30.2X and the sector's 22.9X, but the premium to Target's own history is the more relevant hurdle for investors weighing the stock after its recovery.

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That setup makes sustained earnings execution increasingly important. A higher historical multiple can be supported if sales growth, margin recovery and estimate revisions continue, but any slowdown would make the stock more exposed to multiple compression.

Target Still Faces Execution and Cost Risks

Apparel and home were roughly flat in the second quarter, and management expects the home turnaround to remain a multiyear effort extending through 2027 and beyond. Target has also lowered prices on more than 10,000 items over the past year, which can support traffic but requires productivity and merchandising gains to protect margins.

Second-quarter selling, general and administrative expenses rose 7%, while the expense rate increased about 30 basis points to 21.6% on higher compensation, field hours, training and capital-project spending. Walmart Inc. WMT continues to emphasize everyday low prices and a broad omnichannel offering, intensifying the value and convenience benchmark Target must meet. Costco Wholesale Corporation COST also centers its model on low prices supported by membership economics and high inventory turnover, keeping competitive pressure elevated across value-focused retail.

TGT's Style Scores Are Strong but the Signal Is Mixed

The bottom line is that Target's operating recovery is gaining substance, but its Zacks Rank #3 (Hold) supports a measured near-term stance rather than an aggressive buy decision at the current valuation. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

TGT carries a VGM Score of A and Momentum Score of A, along with a Value Score of B and Growth Score of B. Those readings point to favorable characteristics across major investing styles, but the Style Scores are designed to complement the Zacks Rank. For investors, that combination supports continued monitoring of the recovery while keeping valuation and execution risk in focus.

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This article originally published on Zacks Investment Research (zacks.com).

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