Target (TGT +0.13%) has had its share of struggles since the 2021 bull market ended. Supply chain woes caused issues with high inventories that the company failed to fully resolve. Moreover, the steps to enter and later exit the political arena alienated both right-leaning and left-leaning customers.
To that end, sales have continued to fall, and investors didn't react well to the company's choice of Michael Fiddelke as its incoming CEO. Consequently, the stock has fallen by more than 25% over the last year alone.
What can Target shares do over the next year? Is 2026 the year when a turnaround finally begins, or will the retailer's woes continue? Let's take a closer look.
Image source: Target.
The state of Target
Admittedly, conditions for Target appear bleak at a time when competitors such as Walmart and Costco continue to grow.
In the first nine months of 2025, its $74 billion in net sales dropped by nearly 2% over the same period. Costs and expenses also fell over the same timeframe, but that did not prevent its $2.7 billion in net earnings in the first three quarters of the year from dropping by 11% yearly.
What's more, during that time, inventory fell by about 3% to just under $15 billion. In comparison, inventory stood at around $9 billion at the end of 2019, right before the pandemic, a factor highlighting its struggles with sales. Since Target has a reputation as an "upscale discounter," shoppers may be less inclined to shop there right now amid an uncertain economy.
Fiddelke has been COO since 2024 and is a longtime executive within the operations segment. Hence, Fiddelke helped oversee the rising inventories. That is likely at least one reason that the stock plummeted the day Target named him the incoming CEO. The stock traded at nearly $105 per share prior to the announcement in August, and it has not returned to that level since that time.
NYSE: TGT
Key Data Points
This is worrisome because retail is a difficult business. The top retailers in 1985, Sears and K-Mart, barely exist today, so investors can't assume a recovery is a given.
Reasons for optimism
Despite concerns, it may be premature to dismiss Target. First, it looks like Target may be getting a handle on declining sales. Next year, analysts forecast a 2% rise in sales, a welcome change in direction.
Moreover, Target's nearly 2,000 stores in all 50 states mean that over 75% of America's consumers live within 10 miles of a Target location. This gives most Americans an option for omnichannel shopping outside of Walmart.
Plus, it's likely that Target's stock price accounts for the company's struggles. The stock currently sells at a price-to-earnings (P/E) ratio of 12, a level far below Walmart and Costco, which sell at 41 times and 46 times earnings, respectively.
That lower stock price has raised Target's dividend yield to 4.7%, well above the S&P 500's average of 1.1%. Target's $4.56 per share annual dividend has risen for 54 consecutive years, making it a Dividend King.
That is important because abandoning such streaks tends to cause stocks years of reputational damage. This usually means that a stock will maintain annual dividend hikes if possible. Fortunately, Target's free cash flow of nearly $3.4 billion over the last year covered the $2 billion in dividend expenses during that time. This makes it likely that the payout hikes will continue, especially if sales levels begin to rise as expected.
Moving forward with Target stock
Given the current state of Target, it's likely to be a profitable growth and income stock over the next year.
Admittedly, Target will likely remain a troubled company during that time as its new CEO works to bring about a recovery for the retailer. Nonetheless, the forecasted sales recovery gives skeptical investors hope that Target is not the next Sears or K-Mart.
Moreover, the 12 P/E ratio is far below its largest competitors' and could prompt investors to bid share prices higher if they see signs of a recovery. A 4.7% dividend yield that's looks set to keep growing could also attract some income investors if they see improvements.
Target's recovery will almost certainly take more than a year. Still, given the state of the stock, if signs of improvement appear, the stock could experience a significant rally over the next 12 months.
