Target Is in the Spotlight for All the Right Reasons. Here's Why It's a Buy Now.

One of this year's biggest pleasant retail surprises is Target (NYSE: TGT). The mass market chain's stock had fallen in each of the four previous years, shedding 58% of its value in the process. Some of the downticks were earned.

Target wasn't able to sustain its initial grasp on consumers coming out of the pandemic. It began to lose market share. It found a way to upset both political extremes. Sales would go on to decline for three consecutive years.

Target is back on target. A new CEO has a turnaround plan that is initially working. The stock is up a whopping 74% in 2026. Let's take a closer look at why this market laggard is leading the way higher, and why it's not too late to be a Target investor.

Image source: Getty Images.

Playing to win

The chain that, for decades, had secured a "cheap chic" premium over larger rival Walmart was sputtering in recent years. With Target stock cascading, a change was made at the top. The retailer announced last summer that Michael Fiddelke would be its new CEO come February of this year, the start of its new fiscal year.

The market yawned last summer. Fiddelke was an insider. He had spent two decades at Target, climbing to chief operating officer at the time of his promotion. Wouldn't the concept fare better with an outsider offering a fresh perspective? Did anyone in the boardroom have Brian Niccol on speed dial?

Fiddelke came in with a list of four pillars to get Target back on the consumer map. Merchandising authority, elevating the shopping experience, stepping up its technology, and investing in the chain's teams and communities would be his areas of focus. It wasn't just lip service. Fiddelke was budgeting $2 billion in incremental spending on operational improvements and store renovations, more than half of the prior year's $3.7 billion in earnings.

Perfect timing

In fairness to the prior regime, Target stock was already taking off before Fiddelke began generating results. Target was faring poorly, but it was still a Dividend King, having raised its distributions for at least 50 years. Earlier this year, Fiddelke would stretch that streak to 55 consecutive years of hikes. Target also remained profitable, entering this calendar year with a low P/E and dividend yield north of 5%.

When the market began rotating into consumer defensive names earlier this year, Target was an obvious beneficiary. However, the upticks have continued as Target is now in the early stages of its turnaround.

Negative store-level sales have turned positive in the first two fiscal quarters under his leadership. Fiddelke began the fiscal year targeting 2% in sales growth, doubling that to 4% following encouraging initial results. The stock is naturally moving faster. The dividend yield has fallen below 3%. The forward earnings multiple has risen to the mid-teens.

With Target finally starting to take market share from Walmart and other competitors, momentum is on its side. You can kick yourself for not getting in earlier, but it's still trading at steep earnings and dividend yield discounts relative to Walmart. You don't need a ground-floor opportunity to beat the market. You just need to know which way the elevator is going.

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target and Walmart. The Motley Fool has a disclosure policy.