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The Ratings Game: Target’s traffic growth tops Costco, a good sign with back-to-school and holidays still to come

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Target Corp. has had average traffic growth of 4.8% over the last 13 quarters, just one of the reasons why the retailer was upgraded to buy from neutral at UBS.

UBS raised its price target on Target
TGT,
+1.82%

to $265 from $210.

The traffic growth figure exceeds those from Costco Wholesale Corp.
COST,
-0.18%
,
which analysts say has grown an average of 4.5%. Target’s traffic growth is in line with Home Depot Inc.
HD,
+0.30%

(up 4.9%) and Lowe’s Cos.
LOW,
+0.60%

(up 4.8%). The growth figures reflect “how relevant [Target] has become with consumers,” analysts said.

UBS thinks Target is poised to continue to drive positive traffic numbers due to factors including its fulfillment options, like Drive Up, which have proven popular with shoppers; continued share gains, with more than $1 billion in gains reported in the first quarter; and a post-COVID return to activities like work and parties.

“By driving traffic, Target is able to generate a virtuous cycle where it attracts more compelling products (such as Levi’s, limited-time designs, etc.) and is able to invest more into its business,” UBS analysts led by Michael Lasser wrote.

See: Target earnings blow past estimates as owned-brand sales reach a record

UBS also highlights a rebound in clothing and beauty, which represent 20% and 5% of sales respectively.

JPMorgan in its recent retail note also called out Target in anticipation of the spending recovery in these two categories. Back-to-school, the holiday season and fewer apparel competitors should also benefit the retailer.

“More broadly, we estimate Target grew apparel share 130 basis points in 2020 with Costco and Walmart up 20 basis points and 180 basis points,” JPMorgan wrote.

JPMorgan estimates the the apparel market will grow 21% year-over-year in 2021.

“Target is a hybrid 2021 story providing insulation from the large cap, tough COVID-19 lap fate of others,” JPMorgan wrote in a separate note, calling Target one of its favorite names. JPMorgan rates Target stock overweight.

Analysts also note that Target gained 12 million new multi-channel customers in 2020.

Target announced its coming Deal Days shopping event last week. Taking place June 20 through June 22, the event overlaps with Amazon.com Inc.’s
AMZN,
+2.07%

annual Prime Day event, which is taking place this year on June 21 and June 22.

Also: It’s official: Amazon Prime Day is June 21-22 globally

And: Amazon to use Billie Eilish, H.E.R. and Kid Cudi to help sell its Prime Day event

Not to be excluded, Walmart Inc.
WMT,
-0.76%

is hosting its Deals For Days event taking place June 20 through June 23. Walmart also announced last week that it plans to shutter U.S. store locations on Thanksgiving Day this year, which could prompt others to follow suit.

Target shares rose 1.9% in Tuesday trading, and have gained 33.2% for the year to date.

The S&P 500 index
SPX,
+0.02%

is up 12.6% for 2021 so far.

FA Center: Why direct indexing is gaining traction with financial advisers and their clients

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