Freedom Broker analysts proposed a bullish trade on shares of the U.S. retailer Target (TGT) by buying a call option. Experts expect that a recovery in the company’s sales and profitability, as well as a rotation of capital out of the technology sector, will support the stock. The ближайшим catalyst could be the third-quarter report on November 18. If the option reaches its target price, the estimated return on the trade will be 52.4% before commissions.
All the details are in the biweekly review by analysts at Freedom.
About the company
Target operates a chain of stores in the U.S. and is expanding online sales. The company offers groceries, apparel, home goods, and other consumer products.
Why analysts paid attention to Target
A reallocation of funds out of technology companies and AI-related stocks may support the consumer sector, Freedom analysts believe. For Target, this market factor is combined with a recovery in the business.
In the second quarter, the retailer’s comparable sales rose 3.8%, customer traffic increased 3.6%, and normalized operating profit grew by about 19%. Experts also highlight the Roundel advertising platform and the Target Plus marketplace as additional sources of growth.
The upcoming report should show whether the company managed to maintain positive momentum. If the results confirm improving sales and profitability, this could support a re-rating of the stock, analysts believe.
How the trade is structured
In the November 6 review, Freedom considers buying a call option on Target with a $155 strike and an expiration date of December 18, 2026. Such an option gives the right to buy shares at a set price, and its value may rise as Target’s share price increases.
The entry price in the analysts’ calculations is $8.53 per share, or $853 for a standard contract on 100 shares. The target is to sell the option at $13, earning $447 profit per contract before commissions. That corresponds to a return of about 52.4%.
The planned holding period is about four to six weeks. Analysts expect to close the trade before the option expires. The indicated prices refer to the time the idea was prepared: actual entry conditions may differ.
You can lose the entire cost of the option
The maximum loss on one contract is limited to the premium paid — $853 excluding commissions. If by December 18 Target shares are trading at $155 or lower, the option will expire worthless. The breakeven point at expiration is $163.53 per share: the sum of the strike and the initial premium. Between $155 and $163.53, the position will remain unprofitable on that date, and above $163.53 it will begin to generate profit.
If the option is sold before expiration, the result depends not only on the share price but also on the time remaining and implied volatility. Among the risks, Freedom highlights weak earnings, deteriorating consumer demand, intensifying competition, and time decay — a decline in the option’s value as the expiration date approaches.
What supported the company’s results earlier
In August, Freedom Broker raised Target’s price target to $159 and kept its “Hold” rating. At the time, analysts noted growth in the digital business: sales of Target Plus and subscription revenue from Target Circle 360 increased by more than 40%, while Roundel’s gross revenue rose by almost 20%.
Target’s total revenue in the second quarter increased 5.3% to $26.54 billion. Net profit reached $1.88 billion; however, a one-time refund of customs duties provided significant support. Without that effect, earnings per share were $2.46 versus the market forecast of $2.11.
The new options idea is designed for a short-term move in the stock ahead of the report and after it. It does not imply a revision of the August recommendation on the shares themselves.
Not an individual investment recommendation.