The retail giant faces formidable long-term challenges.
Target (TGT -0.54%), one of the largest retailers in America, was once considered a dependable blue-chip stock for dividend investors. On November 26, 2021, its stock closed at a record high of $238.01 per share, marking a three-year gain of 234%.
Target impressed the bulls with its soaring digital sales throughout the pandemic, the expansion of its private-label brands, and its overall pricing power. The broader buying frenzy in stocks — which was sparked by stimulus checks, social media buzz, and the growing popularity of commission-free trading platforms — further inflated its valuations.
Image source: Getty Images.
After hitting its peak, Target’s stock shed more than two-thirds of its value and now trades at around $88 a share. The company lost its luster as it grappled with tough comparisons to the pandemic, rising inventory levels, inflationary headwinds, tariffs, and politically driven boycotts. As it dealt with those challenges, rising interest rates compressed its valuations.
Target’s stock now trades at just 12 times forward earnings and pays a high forward yield of 5.2%. It’s also still a Dividend King that has raised its payout annually for 54 consecutive years. It takes 50 straight years of dividend increases to qualify for that elite club. Target’s low valuation and high yield might limit its downside potential, but can it bounce back and outperform the S&P 500 over the next five years?
What happened to Target over the past few years?
From fiscal 2021 to fiscal 2024 (which ended this February), Target’s comparable-store sales cooled off significantly from its pandemic-era highs. The inflationary headwinds for consumer spending and the fluctuating tariffs on Chinese goods exacerbated that slowdown. Yet Target continued to open new stores, even as many other retailers shuttered their weaker brick-and-mortar stores, and its gross margins bounced back from a steep post-pandemic drop in 2022.
Metric
FY 2021
FY 2022
FY 2023
FY 2024
Comps growth
12.7%
2.2%
(3.7%)
0.1%
Store count
1,926
1,948
1,956
1,978
Gross margin
28.3%
23.6%
27.5%
28.2%
Data source: Target. FY = fiscal year.
Target is still much smaller than rch rival Walmart, which operates more than 10,750 stores worldwide. The company also only operates its stores within the U.S. and generally targets more affluent and style-conscious consumers than Walmart. That’s why it often prioritizes sales of clothing and home decor over essentials and groceries. However, those non-essential products were more exposed to the recent macro headwinds than essential goods.
As Target grappled with those challenges, it faced boycotts from both right-wing and left-leaning groups. Its sales of LGBTQ-themed merchandise sparked a conservative boycott in 2024, while the rollback of its diversity, equity, and inclusivity (DEI) initiatives in early 2025 caused liberal shoppers to boycott its stores. To make matters worse, its shrink rate (largely caused by theft) rose, as more shoplifters targeted its stores in certain cities.
In fiscal 2022, Target’s gross margin plummeted as it tried to clear out its excess inventories with markdowns. But over the following two years, its gross margins expanded as it negotiated better prices with its suppliers, diversified its supply chain, generated more revenue from its higher-margin advertising and marketplace segments, and improved its product mix while gaining more Target Circle 360 subscriptions. Those improvements offset the pressure from its markdowns, higher fulfillment costs, and unpredictable tariffs.
What will happen to Target over the next five years?
For fiscal 2025, Target expects its comps to drop by the low single digits as its adjusted earnings per share (EPS), which excludes its litigation-related gains in the first quarter, decline by a midpoint of 10%. It expects most of its prior challenges to persist throughout the rest of the year.
On the bright side, Target still expects to add $15 billion to its top line by 2030 — which implies its revenue could grow at a compound annual growth rate (CAGR) of 2.7% from $105.1 billion in fiscal 2025 to $120.1 billion in fiscal 2030. To achieve that long-term goal, it plans to beef up its private label brands, draw more shoppers to its third-party Target Plus marketplace, upgrade its artificial intelligence (AI) and recommendation tools, streamline its supply chain, expand its in-house media and advertising units, and gain even more Circle 360 subscribers. It also plans to open new stores, leverage those locations to fulfill its online orders, and further improve its same-day delivery and curbside pickup services.
Assuming Target hits that modest target, its EPS grows at a similar CAGR of 3% from fiscal 2025 to fiscal 2030, and the stock trades at a more generous 15 times forward earnings by the final year, the company’s stock could rise nearly 60%, to $140 per share, over the next five years. That gain could keep it ahead of the S&P 500, which generates an average annual return of about 10%.
However, that’s based on a best-case scenario in which Target comfortably overcomes all of its macro, competitive, shrink-related, and politically driven challenges. If it doesn’t resolve those issues, Target’s valuation could remain depressed as the stock continues to underperform the broader market.
