Target Stock Rallies as Activist Interest Sparks Hopes for Strategic Change

Target shares climbed on Friday, December 26, after a Financial Times report revealed that activist investor TOMS Capital is building a stake in the retailer. The news fueled optimism among investors that external pressure could accelerate strategic changes at Target, a company that has faced skepticism about the pace of transformation under new leadership.

According to a research note from Wolfe Research, the involvement of an activist investor could help drive a stronger “change narrative” for Target. Investors have expressed concern that early messaging from new CEO Michael Fiddelke suggests continuity rather than bold transformation, and activist engagement may help reshape market perception. Wolfe analyst Spencer Haunus emphasized that “perception is reality” in the stock market, even if fears about limited change under new management may be exaggerated.

Haunus noted that internal initiatives such as return-to-office mandates and layoffs could help jump-start the business, although the positive impact of these measures may take time to materialize in financial results. He described Target as being positioned for a potential “hope trade,” where investor sentiment improves ahead of measurable performance gains, similar to past examples like Dollar Tree, which saw shares surge amid activist involvement.

Target currently trades at roughly 13 times earnings, a valuation that reflects expectations among many investors for a possible earnings-per-share cut. Should those expectations prove overly pessimistic, the stock could appear more attractive on a relative basis. However, Wolfe Research also highlighted meaningful operational challenges. Price gaps in general merchandise need to be addressed, stores may require additional labor hours, and increased spending on merchandising and advertising could be necessary. While these investments may strengthen Target’s competitive position, they could weigh on free cash flow and earnings in the near term.

Importantly, Haunus cautioned against selling core assets such as Target’s real estate or brand, warning that activist pressure in that direction could raise long-term concerns. The stock initially jumped as much as 7% after the report before settling around a 3% gain, suggesting a cautiously optimistic but still measured response from investors.