Target Corp (NYSE:TGT) shares have been among the stronger performers in the retail sector so far this year, rising about 20% and outpacing many large-cap peers, reflecting improving underlying business trends, Jefferies analysts have highlighted.

The firm reiterated its ‘Buy’ rating on the stock with a price target of $140, implying roughly 16% upside from current levels.

“The stock’s re-rating reflects improving fundamentals and growing confidence that the earnings trough is likely behind the company,” the analysts wrote.

A key factor has been stabilization in margins following a period marked by inventory challenges, shrink, and tariff pressures. The company reported gross margin expansion in the fourth quarter, supported by improved inventory management and more efficient fulfillment.

The analysts also pointed to the growing contribution of higher-margin revenue streams, including advertising and membership offerings, which have helped strengthen profitability even amid modest overall growth.

Sales and traffic trends, while not robust, have shown signs of improvement. Jefferies highlighted management commentary indicating positive year-over-year sales in February and strengthening momentum later in the quarter.

“That inflection matters,” the analysts wrote, noting that same-day delivery grew more than 30% and digitally driven sales remained positive. Categories such as food, beauty, and essentials continued to perform well, though discretionary spending remains uneven.

Another structural shift underpinning the investment thesis is the increasing share of non-merchandise revenue. Advertising, membership, and marketplace businesses are expanding faster than the core retail segment, contributing a larger portion of profits. These streams are typically less promotional and more recurring, which the analysts believe should help reduce earnings volatility and improve long-term returns.

Leadership changes have also influenced the firm’s outlook. Under CEO Michael Fiddelke, the company has moved more aggressively on cost control, pricing strategy, and capital allocation. Jefferies wrote that the company has reset expectations to levels it believes are achievable, a shift that has begun to rebuild investor confidence, though the broader market has yet to fully reflect that view.

Looking ahead, the firm sees continued momentum through the remainder of the year as operational improvements begin to translate into earnings growth.

“Even modest positive comps should drive meaningful operating leverage given a cleaner cost base,” the analysts wrote, adding that further margin gains could come from normalization in shrink, improved fulfillment efficiency, and expansion of higher-margin businesses.

Jefferies also highlighted ongoing price investments aimed at reinforcing value perception and increasing customer visits, which Jefferies believes can be achieved without undermining earnings.

“TGT’s year-to-date outperformance reflects a reset trade that we think is evolving into something more durable,” the analysts concluded, adding that current conditions “look like the early innings of a steadier recovery.”