Target Corporation (NYSE:TGT) has become one of the more surprising retail stocks of 2026. Its shares are up roughly 60% year-to-date, far outpacing Walmart and Costco, which have gained less than 6% over the same period. That raises an obvious question: has Target actually become a much better business, or has the stock simply gotten ahead of itself?
The answer may lie somewhere in between. Target’s turnaround is showing real signs of progress, but investors are now paying more attention to how much of that improvement is already reflected in the stock.
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Target is finally getting shoppers back
The biggest change at Target is fairly simple: people are coming back. Second-quarter comparable sales increased 3.8%, while traffic rose 3.6%. Digital comparable sales were even stronger, up 8.7%, helped by more than 25% growth in same-day delivery.
That matters because Target’s recent problems were not just about weak spending. The company had lost some of its relevance with shoppers, particularly in categories such as apparel and home. New CEO Michael Fiddelke has responded by putting more emphasis on what Target sells, how it looks in stores, and whether customers feel they are getting enough value.
The early results are encouraging. Target has revamped nearly half of its center-store grocery assortment, expanded snacks and fresh food, and redesigned its toys and entertainment business. Snack sales increased more than 15% after the grocery transition, while Lego sales rose more than 30%.
The company has also cut prices on more than 10,000 products over the past year. That is particularly important in a consumer environment where shoppers remain sensitive to prices.
The turnaround still has a long way to go
The encouraging part is that Target’s improvements are not limited to sales.
The headline earnings growth is somewhat misleading because Target benefited from a large tariff refund in the quarter. The more important number is underlying EPS, which rose about 20% year over year after excluding the refund. Target also raised its full-year sales growth outlook to around 5%.
But there is an important catch. Some of the headline improvement in earnings came from tariff refunds, including a $1.65 benefit to second-quarter EPS. Investors therefore need to look beyond the reported numbers and focus on the underlying business.
There is also plenty that Target still needs to fix. Management acknowledged that apparel and home remain below where they should be. Those categories have longer product cycles, meaning the improvements could take considerably longer to show up.
That is probably the most important part of the turnaround story. Target has shown that it can improve businesses when it changes the assortment and shopping experience. The question is whether it can repeat that success across the parts of the store that are still struggling.
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The valuation is where things get interesting
At 15.62x forward earnings, Target still looks inexpensive compared with Walmart at 38.02x and Costco at 40.32x.
That gap makes some sense. Walmart and Costco have demonstrated more consistent growth, while Target is still trying to prove that its recent improvement can last. Costco, for example, reported 6.7% comparable sales growth excluding gasoline and foreign exchange, showing why investors continue to place a premium on its consistency.
But Target Corporation does not need to become Costco overnight for the valuation to work.
At this price, investors are betting that Target can turn its recent improvement into sustained sales growth, stronger margins, and better store productivity. If Target can do that, a 15.62x multiple leaves considerably more room for returns, both from earnings growth and multiple expansion.
The problem is that the stock has already risen 60%. Reuters noted after Target’s second-quarter results that expectations were already high following the stock’s run, leaving less room for execution mistakes.
Can Target justify the rally?
Target’s turnaround looks more credible than it did a year ago. Traffic is improving, shoppers are responding to changes in merchandise, digital sales are growing, and management is beginning to see better results from its investments.
But the 60% rally changes the picture. Target no longer looks like a stock investors are buying simply because it is cheap. The market is starting to price in a real turnaround, and now the company has to show that the recent improvement can last.
At 15.62x forward earnings, Target still looks inexpensive next to Walmart and Costco. The bigger question is whether Target can execute. It still has to turn around apparel and home, keep traffic growing, and make sure the investments it is making today translate into lasting earnings growth.
Market Sentiment
Market sentiment toward Target strengthened in Insider Monkey’s database. The number of hedge funds holding the stock increased from 63 at the end of the earlier quarter to 68 at the end of the later quarter in the Insider Monkey database, while the total value of their positions increased from about $2.29 billion to $3.02 billion over the same period.
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This article is originally published at Insider Monkey.
