HSBC has raised its rating on Target from its previous level to Buy and sharply increased its price target from $125 to $190.

Analyst Joe Thomas believes Target's second-quarter results show the company is entering a recovery phase driven by returning customer traffic, with turnaround momentum building.

The most important thing HSBC focused on this time was not simply sales growth, but the change in the structure of that growth.

In the second quarter, Target's same-store sales rose 3.8%, with store-originated sales up 2.7%, while underlying profit and earnings per share both came in about 5% above market consensus.

Traffic growth matters more than average ticket growth

HSBC noted that Target's second-quarter growth came mainly from store traffic rather than relying solely on higher average transaction values.

This point is crucial.

If a retailer's sales growth comes mainly from price increases or consumers spending more per visit, it often means the customer base itself has not improved meaningfully; but if growth is driven primarily by traffic, it shows that more consumers are re-entering stores and platforms to spend.

Thomas believes this indicates Target is rebuilding customer traffic, and it also means its existing store network has not been significantly eroded by online channels or other competitors.

Second-quarter data makes "the turnaround is working" more convincing

HSBC believes the second-quarter results provide clearer evidence of Target's recovery.

The rebound in same-store sales, improvement in store sales, and profit and EPS above market expectations show the company is not only restoring revenue growth but also improving operating efficiency.

Therefore, this round of recovery is not simply driven by promotions to boost sales, but is beginning to reflect a healthier combination of traffic and profitability.

This is also the main reason HSBC directly upgraded the rating to Buy.

The bar for meeting full-year targets in the second half is not high

HSBC also specifically pointed out that the second-half performance Target currently needs to meet its full-year assumptions is not aggressive.

Year to date, Target's two-year same-store sales growth has reached 1.7%.

According to HSBC's current model, two-year same-store sales growth in the second half only needs to reach 0.5% to satisfy its full-year forecast.

This means that as long as the current traffic recovery trend does not reverse significantly, Target has a relatively high probability of meeting or even exceeding existing earnings expectations.

Therefore, HSBC believes there is room for further upward revisions to the company's short-term and medium-term earnings forecasts.

Price target raised to $190

HSBC adjusted its fiscal 2027 earnings per share forecast for Target to $10.61 and assigned an 18x price-to-earnings valuation.

This valuation multiple is roughly in line with Target's historical average P/E over the past five years.

On that basis, HSBC sharply raised its price target from $125 to $190.

The institution believes that if Target's traffic recovery continues and earnings continue to beat current market forecasts, then the current share price is still undervalued.

Therefore, the core of HSBC's judgment can be summarized as follows: Target's most important change is not "selling more," but "bringing customers back"; once the traffic recovery can be sustained, earnings and valuation repair may unfold simultaneously.