Target Corporation (TGT) has looked cheap for a while, but investors have been waiting for real signs that the business is improving. Now, Morgan Stanley thinks that shift may finally be happening.
Morgan Stanley recently updated its outlook for the stock, noting that it now sees “a path to a credible improvement story,” supported by early improvements in traffic, merchandising, and execution.
Morgan Stanley is buying into Target’s turnaround story
On April 14, 2026, Morgan Stanley reiterated its Overweight rating and $145 price target, and spoke about Target in a noticeably more bullish tone. With the stock’s current price of about $124, the price target implies about 17% upside.
Additionally, Morgan Stanley said Target is evolving from a “pure optionality story” into a more credible turnaround story. Investors have long viewed Target as cheap, but the company had not shown enough operational momentum to justify a rerating to a higher valuation.
That lines up with management’s own messaging. In the Q4 earnings release in March, management said, “Our team is firmly focused on writing Target’s next chapter of growth, rooted in strengthening our merchandising authority, delivering an elevated and differentiated shopping experience, advancing our use of technology.”
In March, Target delivered a full plan to revitalize the company, including plans to deploy over $1 billion in additional CapEx for more than 30 new stores and over 130 full-store remodels.
Morgan Stanley now appears increasingly convinced that this is beginning to change.
Key categories could reignite Target’s growth
Morgan Stanley believes Food & Beverage and Beauty will lead the early stages of the recovery, with Home Furnishings & Décor potentially contributing later in 2026 and beyond.
That setup gives Target multiple ways to improve performance over time.
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Food helps drive repeat store visits and consistent traffic. Beauty supports margins because it tends to be a more profitable category. Home could provide additional upside later if consumer discretionary demand improves.
If those trends play out, Target would have a clearer path toward returning to sustainable top-line growth.
Higher-margin businesses are helping Target’s profitability
Part of Target’s earnings resilience is coming from newer, higher-margin business lines outside of traditional retail.
During the fourth quarter, membership revenue more than doubled, marketplace revenue grew more than 30%, and Roundel advertising delivered double-digit growth. Same-day delivery through Target Circle 360 also rose more than 30%.
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These businesses carry attractive economics and help diversify Target’s earnings base beyond physical merchandise sales.
They are not enough to offset weak core retail demand on their own, but they improve overall earnings quality and make the business less reliant on merchandise margins alone.
Earnings Have Held Up Better Than Expected
Target’s March 2026 earnings report showed that while sales remain under pressure, the company has done a solid job of protecting profitability. Fourth-quarter net sales declined 1.5% to $30.5 billion, and comparable sales fell 2.5%. Even so, adjusted EPS rose to $2.44 from $2.41 a year earlier, while gross margin improved from 26.2% to 26.6%.
Management also guided for roughly 2% net sales growth in FY2026, slight comparable sales growth, and about 20 basis points of operating margin expansion.
That guidance suggests even modest sales improvement could translate into stronger earnings growth if margins remain stable.
Catalysts that could push Target higher
- Better merchandising and inventory execution could help bring more shoppers into stores.
- Higher sales would allow Target to spread fixed costs more efficiently.
- A rebound in Home Furnishings could provide a meaningful earnings boost.
- Continued growth in ads and memberships could lift profit margins.
Risks that could weigh on shares
- Weak consumer spending could pressure traffic and demand.
- Soft discretionary sales may limit broader revenue growth.
- Inventory or promotional mistakes could hurt margins.
- Newer business lines may not grow fast enough to offset retail weakness.
Key takeaways for investors:
Target’s turnaround story is starting to look more real as traffic trends stabilize, margins hold up, and higher-quality revenue streams grow. Morgan Stanley’s bullish stance reflects growing confidence that even modest sales improvement could translate into stronger earnings, giving the stock a clearer path higher if execution continues.
At the same time, the bar for success is still relatively low. If the company can sustain steady traffic, avoid major execution missteps, and continue expanding higher-margin businesses, the earnings profile could improve enough to support a higher valuation over time.
Related: Target’s turnaround plan is finally taking shape
