Target Has Had a Comeback. The Cash Says More Than the Headline.

Target stock is up roughly 70% this year and sitting just under its 52-week high. And yet it is still about a quarter below the all-time record it set back in late 2021. That gap is where the whole argument lives: has the recovery already priced in, or is the business improving faster than the stock suggests?

To answer that, you have to look past the number everyone points to on earnings day.

What the market was charging for: a broken Target

For four years, the story on Target was a retailer slowly losing its edge. Net sales sat roughly flat while its customers drifted to cheaper and more convenient competitors. Same-store sales — the measure of whether existing stores are still pulling in business — fell quarter after quarter. The in-store experience got dinged, shrink and theft became a constant headline, and the stock had shed well over half its value from its 2021 peak, bottoming near $81 last November.

That was real pain, not just a bad stretch of sentiment. When a business stops growing, loses customers, and can't find a new way to win, a falling stock is usually telling you something true. So the question for the last year wasn't "is it oversold?" It was: did anything actually change?

What changed under the new leadership

Target handed the job to Michael Fiddelke, an insider who'd been at the company for over two decades, and he put the money where the problem was: a large, multi-year investment in refreshing physical stores and rebuilding the digital side, where growth in same-day delivery, advertising, and membership fees has been unusually strong.

The operating numbers are the first place that shows up. After a long run of declines, comparable sales turned positive in the first quarter and kept it up in the second — up 3.8%, driven by more customers walking through the door (traffic up 3.6%) and digital sales up nearly 9%. Second-quarter net sales grew 5.3% to $26.5 billion, and management has now raised its full-year outlook on the back of two straight quarters of strong results.

That is a genuine improvement, and it is the "old story" going stale. But "customers came back a bit" is not yet "this is a durable, compounding business." The test that separates a real fix from a nice quarter is cash.

The number that matters: free cash flow

Free cash flow is the money a company actually gets to keep after paying for the equipment, buildings, and upgrades it needs to run. It is harder to dress up than a profit headline, which is why it is the cleanest tell on whether an improving story is real.

Here is the interesting part. Target is spending a record on its stores — roughly $4.3 billion over the past year on new and remodeled locations, a deliberate bet that a better store brings the traffic back. And even with that spend still pouring out the door, free cash flow has jumped about 51% year over year, from a trough of roughly $2.8 billion last fiscal year to about $4.5 billion over the trailing twelve months.

That is the bridge between the old story and the new one. A business that is healing shows up in cash first. Target is choosing to reinvest a fortune in itself rather than skim the maximum cash, and it can still do it — which means the top-line recovery is broad enough to fund the turnaround instead of depending on cost-cutting. That is the hardest part of a turnaround to fake, and right now it is working.

The caveat that keeps you honest

Do not let the earnings headline carry the whole case. Target's second-quarter earnings per share nearly doubled to $4.11 — but a big chunk of that, about $1.65 a share, came from a one-time $994 million refund on tariffs. Strip that out and the quarter is still good — earnings up about 20%, operating margin up to roughly 5.9% from 5.2% a year ago — but it is a steadier improvement, not a doubling. The tariff item will not repeat.

And the stock has already done a lot of work. On the company's raised full-year earnings target, Target looks affordable; but once you remove the one-time windfall, it trades in the high teens to about 19 times earnings, and roughly 17 times the free cash flow it just generated. It also still pays a dividend of about 2.8%. That is a fair price for a working recovery — not the deep discount of a forgotten stock. The pure "expectations have fully reset" entry, when nobody believed in Target, has mostly closed.

Where I would stand

I can be wrong, and the stock has already run. The thing to watch over the next twelve months is not the next earnings headline — it is whether free cash flow keeps climbing toward $5 billion or more while Target keeps spending on stores, and whether comparable sales and traffic hold positive. If cash keeps building and customers keep coming, the business becomes harder to dismiss every quarter, and a 2.8%-yielding stock at roughly 17 times rising cash flow is defensible. If traffic stalls or the store investment fails to convert into durable margin, the FCF recovery loses its footing and the "recovery" was mostly one year of flattering numbers.

The setup is a business that may soon look a lot harder to dismiss once the free cash flow keeps showing up — not a stock that owes you a bigger jump. So I would not chase the momentum. Sit on your hands until the cash flow path confirms itself for another quarter, and let the numbers, not the rally, tell you whether the recovery has further to run.