Target (TGT) Has a Turnaround Plan. Q1 Will Be the Real Test

Target (TGT) stock looks fairly valued ahead of what I see as a critical Q1 test for the company’s turnaround story. The company is scheduled to report earnings on May 20 before the opening bell. While simply reaffirming full-year guidance could be enough to support the shares, much of the recent rebound already appears to reflect expectations for a gradual recovery. Against this backdrop, I am reiterating my Hold rating on TGT.

Although the new CEO, Michael Fiddelke, has laid out a credible turnaround plan to revive the growth story, the underlying outlook still appears somewhat fragile. Part of the expected improvement still depends on higher-margin non-merchandise revenue, such as digital advertising, rather than on a broad-based recovery in the core retail business. In this article, I outline key points that support my cautious view on the Minneapolis-based retailer.

The Recovery Narrative Is Taking Shape

Despite the decent rebound Target stock has seen so far in 2026, the shares have traded in a relatively narrow range since the company reported its Q4 2025 earnings in early March.

Looking back at that earnings report, it was fairly clear that the numbers did not suggest Target was heading in a better direction. Comparable sales declined 2.5% year-over-year in the quarter and 2.6% for the full year. This came at the same time that direct peers such as Walmart (WMT) posted comparable sales growth of 4.6% and Costco (COST) reported adjusted comparable sales growth of 7.9%, highlighting Target’s continued loss of market share.

As a result, it is not hard to understand why Target was trading at just 10x forward earnings in the middle of last year. However, with Michael Fiddelke taking over as CEO in February, the market has started to view the company more favorably. In fact, Target’s re-rating since its lows in November 2025 appears to have been driven largely by the prospect of better growth ahead, or at least an end to the company’s recent stagnation.

For example, the guidance provided by management for Fiscal 2027, aligning with calendar year 2026, implies net sales growth of around 2% compared with Fiscal 2026. In other words, investors are beginning to price in a return to growth after three consecutive years of little to no progress in the underlying business.

Why Target Remains Caught in the Middle

As the current macroeconomic backdrop in the U.S. is often described as a “K-shaped economy,” high-income households continue to drive spending while lower-income Americans pull back. This persistent divide in consumer behavior tends to hurt retailers like Target, which sits in the middle and struggles to capture either the most price-sensitive shoppers or the most affluent consumers.

Although Michael Fiddelke is rolling out a turnaround plan to get Target growing again, there are a few important nuances in that growth outlook worth highlighting. For example, management’s guidance for FY27 calls for only a very modest increase in comparable sales. In addition, non-merchandise revenue — which includes advertising through the company’s app and digital ecosystem — is expected to contribute more than one percentage point of total growth.

This suggests that the growth implied in management’s guidance remains somewhat fragile. It appears to depend more on higher-margin revenue streams such as digital advertising than on a meaningful recovery in the core retail business. In other words, Target may well deliver some revenue growth and margin expansion. However, that does not necessarily mean consumers are returning to stores in force, at least based on management’s own assumptions.

In any case, Wall Street currently expects Target to grow revenue by 2%–3% over the next three fiscal years, from FY27 through FY29. That may prove harder than it looks. Target may need to pull out all the stops for this growth trajectory to materialize, especially if the underlying retail business continues to struggle. It is also worth noting that part of this expected acceleration simply reflects easier comparisons after several years of little to no growth.

Q1 Is Possibly a Key Test for the Recovery Story

Target is set to report its Q1 earnings at a time when the market is already beginning to price in a gradual recovery scenario. The stock currently trades at 15.4x trailing earnings, representing an 11% discount to its five-year historical average and sits just below its five-year median of 15.6x.

Consensus expects earnings per share (EPS) of $1.34, which would represent about 7.4% year-over-year growth. However, that figure is nearly 7% lower than what analysts were expecting just one quarter ago. On the revenue side, Target needs to report more than $24.3 billion to beat estimates, implying 2.4% year-over-year growth. Meanwhile, that expectation has remained virtually unchanged over the past three months.

The Metrics That Matter Most for Target

More important than simply delivering a beat across the board is proving that the early signs of the turnaround outlined by Michael Fiddelke are actually beginning to show up in the business. Management has already stated that February delivered “very healthy top-line growth” and that sales trends have improved in recent months. That creates an implicit expectation that the company is starting to recover traffic, particularly in discretionary categories such as home, apparel, and beauty.

However, what will really matter this quarter is, first and foremost, comparable sales and, above all, store traffic. If growth is accompanied by an increase in store visits, that would be an important sign that consumers are beginning to re-engage with the brand.

Second, the market will be closely watching management’s confidence in its full-year guidance. Since consensus EPS is essentially in line with the midpoint of management’s $8 per share outlook, the most bullish outcome would likely be a simple reaffirmation of guidance, accompanied by commentary suggesting that the business is progressing as planned. The shares currently offer a compelling dividend yield of 4.79%.

Is TGT a Buy, According to Wall Street Analysts?

The consensus among Wall Street analysts on TGT is currently a Moderate Buy. Of the 25 ratings issued over the past three months, 11 are Buy, 12 are Hold, and only two are Sell. That said, analysts appear to view the stock as fairly valued at current levels. The average price target stands at $129.75, implying upside of 6.86% from the current share price.

A Hold Until Growth Becomes More Convincing

Target is a Hold for me at current prices. The stock already appears to be pricing in a recovery scenario, trading at roughly 15.4x trailing earnings. As such, I would not expect Q1 to bring any major surprises, particularly given that a meaningful portion of the expected growth is coming from non-merchandise sources.

In any case, simply reiterating full-year guidance would, in my view, be a positive outcome in itself and likely enough to support the stock at its current valuation.

I do not think Target is a bad stock to own, especially from an income perspective, with the shares currently offering a compelling dividend yield of 4.79%. On the other hand, I do not see this as a particularly attractive moment to accumulate shares, which keeps me somewhat cautious on TGT stock.