BofA Upgrades Target

In a report published Friday, analysts at Bank of America Merrill Lynch upgrade Target Corporation TGT from Neutral to Buy. The price target was set to $92. The analysts believe that Target is well positioned to take advantage of the improvement in the mid-cycle consumer environment, especially due its core customer base comprising the middle income demographic. "We believe Target will continue to see increased spending at its stores and online as average retail prices are also increasing as customers trade-up to more expensive items or were more willing to pay full price," the analysts said. These trends are expected to persist, with the economic recovery broadening during the mid-cycle. In addition, Target's new initiatives are delivering positive results and are expected to drive the company's gross margin expansion and same-store sales via a favorable mix shift. According to Bank of America Merrill Lynch, "The customer appears to be responding well to TGT's renewed focus on improved assortment and merchandising in higher-margin signature categories, such as style (apparel and home), baby, kids, and wellness." The revenue and comps for the above mentioned categories have been higher than the company average in F4Q15, a trend that is expected to continue, driven by new and exclusive brand partnerships. Moreover, the analysts expect Target's intended omni-channel investments worth $1 billion in 2015 to drive continued comp growth. In fact, the digital channel is likely to be a major contributor to comp sales over the next five years. Although it is still early days in the turnaround of Target's US business, the improved performance is expected to continue going forward.