HSBC has raised its rating on Target from Hold to Buy and significantly increased its price target from $125 to $190.

The firm believes that improving foot traffic, upwardly revised guidance, and potential room for earnings recovery are making the company's fundamentals attractive once again.

HSBC analyst Joe Thomas raised his fiscal 2027 earnings per share estimate for Target to $10.61 and applied an 18x price-to-earnings multiple for valuation.

That multiple is roughly in line with Target's historical average over the past five years, while the company currently trades at a P/E of about 16.26x.

This means HSBC's price target increase stems both from improved earnings forecasts and from the expectation that valuation will revert toward historical norms.

Foot traffic recovery becomes the key driver behind HSBC's bullish turn

The core basis for HSBC's rating change is the notable improvement in Target's recent foot traffic performance.

The company posted a 3.8% increase in second-quarter same-store sales, indicating that consumers are returning to Target stores and platforms.

Compared with relying solely on price increases or higher average transaction values, a recovery in foot traffic typically signals that a retailer's customer base and brand appeal are improving.

At the same time, Target also raised its performance guidance, strengthening HSBC's confidence that earnings will continue to recover in the coming quarters.

HSBC believes there is still substantial room for earnings recovery at Target.

If sales continue to improve while cost control remains stable, the company's actual earnings could continue to exceed prior market expectations.

Earnings improvement comes not only from sales but also from gross margin recovery

Another important reason for Target's recent profit improvement is the rebound in gross margin.

HSBC noted that the company has made progress in both inventory shrinkage and merchandise markdowns.

In the retail industry, inventory shrinkage includes factors such as theft, damage, and inventory management discrepancies, while reduced markdown pressure means Target no longer needs to rely on large-scale discounting to clear inventory as it did previously.

If these two improvements can be sustained, the company could achieve significant earnings growth through better merchandise margins even if sales growth is not particularly high.

This is also an important foundation for HSBC's view that Target has an "earnings recovery opportunity."

The $190 price target implies valuation returning to historical average

HSBC expects Target to achieve fiscal 2027 earnings per share of $10.61 and assigns an 18x P/E multiple, corresponding to a price target of approximately $190.

This multiple is not based on valuation assumptions significantly above historical levels, but rather represents a rough return to Target's average P/E over the past five years.

From this perspective, HSBC's logic is: if earnings recovery materializes, Target does not need to command a significant valuation premium—merely returning to its normal historical valuation range would support a higher stock price.

Market earnings expectations themselves are also improving.

Several analysts have recently raised their future earnings forecasts, and the consensus estimate for fiscal 2027 EPS is approximately $10.51, already fairly close to HSBC's $10.61 forecast.

Multiple investment banks simultaneously raised price targets recently

After Target's second-quarter results were released, several institutions also raised their price targets, though opinions still diverge on the extent of the subsequent recovery.

UBS raised its Target price target to $185 and maintained its Buy rating, primarily based on the 3.8% same-store sales growth in the second quarter, which exceeded buy-side expectations of approximately 3.5%.

Guggenheim raised its price target to $175; TD Cowen raised its to $160, also citing better-than-expected same-store sales performance.

Mizuho lifted its price target to $150 but maintained a Neutral rating; Goldman Sachs continued to assign a Neutral rating with a $161 price target, remaining cautious about factors such as competitive pressure.

Therefore, while the market broadly recognizes Target's recent operational improvement, institutions still differ in their judgments on how long the earnings recovery can ultimately be sustained and what level valuation should return to.

Apparel, home, and consumer weakness remain primary risks

HSBC also listed three major risks.

First, the recovery in apparel and home categories remains uneven.

These businesses are important discretionary consumer categories for Target, and if consumers continue to cut back on non-essential spending, related sales could continue to face pressure.

Second, there remains a risk of weakening overall U.S. consumer spending.

Target has high exposure to middle-income consumers, so tightening household budgets would directly affect its sales.

Third, recent gross margin improvements may not be sustainable over the long term.

If inventory shrinkage rises again, or if the company increases promotions and markdowns again to maintain foot traffic, margins could come under pressure once more.

Therefore, the core judgment behind HSBC's upgrade of Target can be summarized as follows: foot traffic has already begun to recover, earnings recovery is materializing, and current valuation remains below historical averages; if sales and gross margin improvements can be sustained, Target still has room for both earnings and valuation to be revised upward simultaneously.