Target shares will rise as the discount retailer benefits from aging demographics, according to Bank of America Merrill Lynch.

The firm reiterated its buy rating for the retailer and added the stock to its US1 top ideas list.

“We believe the company should benefit from the discount store cycle … given our view that TGT’s efforts to turn around its US business should accelerate in 2018 and result in market share gains longer-term,” analyst Robert Ohmes said in a note to clients Wednesday. “The Discount Store cycle that we expect to play out over the next 5-10 years [is] supported by … demographics as aging Millennials and Baby Boomers support growth of budget conscious consumers.”

Target shares rose 2 percent Wednesday after the report. Its shares are up 9.9 percent through Tuesday versus the S&P 500’s 0.6 percent gain.

Ohmes reiterated his $86 price target for Target shares, representing 20 percent upside to Tuesday’s close.

The analyst noted the stock trades at only 13 times his fiscal 2020 earnings per share estimate and has a 3.2 percent dividend yield. He also cites Target’s strong free cash flow yield of 6 percent.

“We view valuation as compelling,” he said. “We believe investors underappreciate the ability for Target to drive sustainable comps and return to EBIT [Earnings Before Interest & Taxes] growth in the back half of this year.”

— CNBC’s Michael Bloom contributed to this story.