Investing.com -- Oppenheimer on Monday reinstated Target Corporation (NYSE:TGT) as a top pick.
The firm had previously removed TGT from its top pick status in mid-October when the stock was trading around $157, due to concerns about apparel clearance inventory. Following a reset, Oppenheimer now sees a "very compelling risk/reward scenario" for TGT shares.
The retailer's shares rose more than 3%.
The investment firm highlighted several factors that contribute to its positive outlook, including their analysis showing that TGT shares are at or near a bottom, negative investor sentiment, and achievable Q4 guidance.
Oppenheimer also pointed to a path to 6% operating margins and potential support from an attractive dividend yield. The next key catalyst, according to the firm, could be the 2025 analyst day.
Oppenheimer's updated top six picks now include Church&Dwight (NYSE:CHD) Co, Costco Wholesale Corporation (NASDAQ:COST), Freshpet (NASDAQ:FRPT), Inc., Sanchez Energy Corporation, Target, and Walmart (NYSE:WMT).
Oppenheimer believes that TGT's Q4 guidance accounts for the various risks associated with the holiday season, including discretionary category headwinds and markdown risks. The firm's FY24 forecast remains unchanged and aligns with the low end of the full-year guidance.
“As we have highlighted in our recent checks, stores appear well merchandised for the holidays with seasonal assortments now fully on display,” analysts Rupesh Parikh and Erica Eiler noted.
The firm also remains optimistic about TGT's long-term potential, maintaining that management can drive comparable growth back to the low single-digit range. Oppenheimer's conservative modeling suggests an operating margin recovery to 5.3% by FY26, leaving room for potential upside.
Oppenheimer views the current investor sentiment around TGT as “overly negative” and continues to see the recent challenges as primarily driven by category-specific headwinds rather than structural issues within the company.
“Traffic increased a healthy 2.4% in Q3 with categories such as beauty, food and beverage, and essentials performing well,” analysts highlight.
Their conservative stance through FY26 suggests limited downside risk, with a downside projection around the $110-120 level. The firm also points out that TGT's current dividend yield of approximately 3.5% could provide some support to the stock price.
At the same time, Oppenheimer pointed out several risks to its positive stance, including the possibility of a more promotional retail environment or a lack of improvement in discretionary categories later in FY25.
While competitors like Amazon.com (NASDAQ:AMZN), Costco, and Walmart may continue to gain market share, Oppenheimer still believes that TGT has the potential to gain share over time. The firm has adjusted its quarterly FY25 earnings per share forecasts accordingly.
This content was originally published on Investing.com
