The turnaround story at Target is not done yet, and there's still time for investors to reap the rewards, according to RBC Capital Markets. Analyst Steven Shemesh initiated coverage of Target with an outperform rating and named the stock a top pick. Shemesh said in a note to clients Thursday evening that the stock should earn a higher valuation in the months ahead. "We believe TGT's investments behind e-commerce, price gaps, stores, and owned brands have driven a structural improvement that is being over-shadowed by COVID noise. We see share upside via both earnings upside and multiple expansion," Shemesh wrote. RBC set a price target of $278 per share, which is 31% above where the stock closed on Thursday. Target's scale should also help it manage inflation issues in the short term, RBC said. "There's some concern in the market that Target's decision to only pass on a portion of supplier price increases will result in some margin pressure near-term – especially given increased costs to expedite product. While we are modeling gross margin pressure, we believe a combination of sales leverage and productivity will enable EPS to at least meet the consensus hurdle," the note said. The stock has shed 8% in January but is still up more than 15% over the past year. RBC also named Chewy a top pick and initiated coverage of Walmart and O'Reilly Automotive with outperform ratings. — CNBC's Michael Bloom contributed to this report .
Shoppers exit a Target store during Black Friday sales in Brooklyn, New York, November 26, 2021.
Brendan McDermid | Reuters
The turnaround story at Target