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Key Takeaways

• Target's Q3 results showed falling comps, softer demand, and lower earnings versus last year.
• Target's shares slid 15.7% in three months, underperforming its industry and the sector.
• The company is advancing digital sales, AI tools, and higher CapEx to support its long-term strategy.

Target Corporation’s (TGT - Free Report) third-quarter fiscal 2025 results have sparked fresh debate among investors, as it continues to navigate a shifting consumer landscape and an increasingly competitive retail environment. With the numbers in hand, the key question now is whether the stock’s investment case has strengthened or weakened.

Sneak Peek Into Target’s Q3 Performance

Shares of Target slipped around 5.5% since it released fiscal third-quarter results on Nov. 19, underscoring investor caution following the top-line miss. Both revenues and earnings declined from the prior-year period, while comparable sales also fell, reflecting sustained pressure across discretionary categories. Further weighing on sentiment, management narrowed its full-year profit outlook.

Despite the challenging environment, Target continued to show resilience in digital growth and non-merchandise revenue streams, aided by strength in membership, marketplace, and Roundel advertising.

The company reaffirmed confidence in its holiday readiness. Strong execution of fulfillment options, expanded exclusive assortments, and continued efficiency gains remain core to Target’s multiyear transformation plan. Management reiterated its focus on strengthening merchandising authority, elevating the guest experience, and accelerating technology-driven operational enhancements.

Target Stock Lags Significantly Despite Broader Market Rally

Target has experienced a steep decline over the past three months, with its shares tumbling around 15.7%, underperforming the Zacks Retail - Discount Stores industry's decline of 3.7%. The company also trailed the Retail-Wholesale sector’s decline of 5.2% and the S&P 500's rise of 3.9% during the same period.

Target’s Performance Over the Past Three Months
 

Image Source: Zacks Investment Research

Closing the week at $87.62, Target stock stands below its 52-week high of $145.08 reached on Jan. 28, 2025. Target has been trading below its 50- and 200-day simple moving averages of $89.18 and $97.41, respectively, signaling bearish sentiment in maintaining the recent performance levels.

Target Trades Below 50- & 200-Day Moving Averages 
 

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Target’s share decline reflects continued sales softness, discretionary-category weakness, and margin pressure. Volatile demand trends and a longer turnaround timeline have further weighed on sentiment.

Target has also underperformed its peers, including Walmart Inc. (WMT - Free Report), Ross Stores Inc. (ROST - Free Report), and Costco Wholesale Corporation (COST - Free Report).

Shares of Walmart and Ross Stores have increased 10.6% and 9%, respectively, whereas shares of Costco have lost 6.8% over the same period.

Target vs. Peer Performances 
 

Image Source: Zacks Investment Research

The recent slide in the stock has contributed to its discounted status. Target stock has been trading at a forward 12-month price-to-earnings (P/E) ratio of 10.59, lower than the industry’s average of 29.10. Peers — Walmart, Ross Stores, and Costco — have been trading at higher forward P/E ratios of 37.44, 23.84, and 43.85, respectively, compared with Target.

Target P/E Ratio (Forward 12-Months)
 

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What’s Behind Target’s Dismal Stock Run?

Target continues to struggle in regaining momentum amid a challenging retail backdrop. Fiscal third-quarter results were in line with internal expectations but still reflected contraction, with comparable sales declining 2.7% year-over-year. Weakness remained concentrated in discretionary categories such as Home and Apparel. Also, store comps fell roughly 3.8% during the quarter. 

Moreover, margins faced pressure. The gross margin rate slipped 10 basis points from last year, weighed down by higher markdowns, though partially offset by improved inventory shrink and supply-chain productivity. SG&A deleveraged around 60 basis points, caused in part by one-time business transformation costs. Adjusted EPS fell to $1.78, down from $1.85 a year earlier. 

Consumer sentiment has dropped, and shoppers have continued to prioritize value and essentials over discretionary goods. Traffic, or the number of transactions, dipped 2.2%, while the average transaction amount slid 0.5% in the fiscal third quarter. 

For the fourth quarter of fiscal 2025, Target projects a low-single-digit decline in sales. Full-year adjusted EPS guidance has been narrowed to $7.00-$8.00 compared with the prior estimate of $7.00-$9.00, reflecting cautiousness around demand volatility and external uncertainty. While leadership expresses confidence in the long-term strategy, near-term momentum remains challenged.

Downward Estimate for Target Post Q3 Earnings

Reflecting cautious sentiment around Target, the Zacks Consensus Estimate for EPS has seen downward revisions. Over the past seven days, the consensus estimates for the current and next fiscal years have declined 5 cents to $7.32 and 3 cents to $8.00 per share, respectively.
 

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Target’s Game Plan to Overcome Current Challenges

Target is gaining momentum across the digital and innovation initiatives, helping reinforce its competitive position despite a challenging retail environment. Digital comparable sales grew 2.4% in the fiscal third quarter, supported by more than 35% growth in same-day delivery through Target Circle 360. Marketplace and media businesses also accelerated, with Target Plus GMV rising nearly 50% and Roundel delivering mid-teens growth, highlighting the strength of Target’s profitable digital ecosystem. 

The company is expanding its leadership in AI-driven retail with a first-of-its-kind conversational shopping experience inside ChatGPT. The new integration enables curated browsing, multi-item checkout, fresh-food shopping, and Drive Up, Pickup or shipping — all within a single session. Guests will receive personalized recommendations while shopping Target’s full assortment. This advancement reflects Target’s strategy to meet consumers wherever they are with greater convenience, curation, and value.

Operational and technology upgrades are delivering strong results, with advanced machine-learning systems and new Gen-AI tools improving forecasting, assortment planning, and speed to market. Tools like the Target Trend Brain and synthetic audiences have strengthened decision-making and responsiveness. These advancements drove a 150-basis-point improvement in on-shelf availability — Target’s strongest gain in years — and improved inventory flow across the network.

Momentum is also building in merchandising. Fun 101, Target’s transformed Hardlines strategy, delivered strong growth across toys, games, entertainment, and sporting equipment, while Food & Beverage continued comp growth driven by beverages, candy, and trend-right wellness products. Newness resonated with guests in categories such as denim, sleepwear, and seasonal assortments — reinforcing the effectiveness of design-led merchandising. 

Finally, Target is investing aggressively in long-term growth. CapEx is set to increase approximately $1 billion next year — from $4 billion in fiscal 2025 to about $5 billion in fiscal 2026 — representing a 25% year-over-year rise. These incremental dollars will fund more store remodels, expanded fulfillment capabilities, new larger-format stores, and the most significant floor pad transformations in a decade. Early performance from remodeled and new stores continues to exceed expectations, validating this elevated investment.

How to Play Target Stock: Buy, Hold, or Sell?

While Target’s weak traffic, pressured margins, and soft discretionary demand create near-term uncertainty, early progress in digital growth, merchandising, and operational efficiency suggests the foundation for recovery is forming. Still, caution is appropriate given ongoing volatility.

Target’s turnaround is developing but not yet secure. Higher-risk investors may consider limited exposure at the stock's discounted valuation, while conservative investors should wait for clearer signs of sustained sales and margin improvement.

At present, Target stock carries a Zacks Rank #3 (Hold) rating.

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