Target Corporation (NYSE:TGT) and Walmart Inc. (NYSE:WMT) are both retail giants with more than 12,000 stores between them. Both reported Q1 2022 results during the third week of May (TGT on May 18, WMT on May 17), and both reported similar results: earnings fell far short of projections.
In the days since their earnings announcements, both stocks have gone down in price Target (-31%) significantly more than Walmart (-18%).
Walmart, of course, is the largest retailer in the world, but Target ranks seventh. Walmart's revenue of $543 billion is more than five times Target's $92 billion.
In addition, both companies have considerable e-commerce sales with Walmart ranked second (behind only Amazon (AMZN)) and Target ranked sixth.
Since the earnings announcements, Seeking Alpha contributors have rated Target better than Walmart with two Buy ratings and six Holds compared to WMT's five Hold ratings. Noticeably neither has any Sell ratings even after the poor Q1 showing.
In this article, I will examine what the differences are between the companies and which one is potentially the better investment option including dividends and capital gains.
Target And Walmart's Valuation Compared To Their Financial Metrics
When you look closely at the financial metrics comparing the two companies it looks like TGT is the winner.
The first point that jumps out at you is how much bigger WMT is than TGT with five times more revenue.
This is because Walmart has more than 10,000 stores worldwide and Target a little less than 2,000 at 1,926. And about one-half of Walmart stores are overseas.
The other curious point is how close they are in revenue per store with both Target and Walmart averaging about $54 million. So revenue-wise they are virtually identical on a per-store basis.
I was surprised that the GM (Gross Margin) percentage (Line 4) for Target was 3% points higher than Walmart.
For the most recent quarter, Target's GM was an admitted big problem:
First quarter operating income margin rate was 5.3 percent in 2022, compared with 9.8 percent in 2021. First quarter gross margin rate was 25.7 percent, compared with 30.0 percent in 2021. This year's gross margin rate reflected higher markdown rates, driven largely by inventory impairments and actions taken to address lower-than-expected sales in discretionary categories, as well as costs related to freight, supply chain disruptions, and increased compensation and headcount in our distribution centers. Source: Target Press Release
Ditto for Walmart who explained the usual litany of problems affecting their GM:
First-quarter gross margin rate decreased 89 basis points versus last year, due in part to pressure at Sam's Club from supply chain costs, fuel mix, inflation of markdowns caused by inventory delays. Walmart U.S. gross margin rate was down 38 basis points with more than 3/4 of the decline related to higher-than-expected supply chain, fuel, and e-commerce fulfillment costs. Source: Earnings Announcement
And although Target's GM% (Line 4) is higher than WMT's 28% to 25%, Walmart's GM % to EV (Enterprise Value) is actually 3 points higher than Target's, 40% to 37%.
So overall, gross margin numbers are relatively equal.
Two more important metrics are PE Ratio (Line 10) and Price to FCF (Free Cash Flow) shown on Line 15. In both cases, TGT looks much more reasonably priced than WMT, especially on the FCF ratio.
Both of those items make me wonder if it's WMT that's overvalued and TGT being undervalued, rather than vice versa.
And if we look at earnings per share over the last six years, Target also seems much better than Walmart, up 131% versus Walmart's 34%.
So on the basis of financial metrics, Target is the big winner over Walmart.
Is Target Or Walmart Stock Better For Dividends?
Looking at the current rate of dividends, Target's yield of 2.1% is marginally better than Walmart's 1.8%.
In addition, both companies are Dividend Aristocrats having paid a dividend for at least 25 years.
Per Target CFO Michael Fiddelke:
Regarding the dividend, later this year, we plan to recommend that our Board approve a per-share dividend increase in the 20% to 30% range, as we continue to move toward a 40% payout ratio over time. In addition, given our current cash position and expectations for strong cash flow, we believe our 2022 share repurchases will be at or above the $7 billion we accomplished in 2021. Source: Earnings Call Transcript
So for Target, a dividend increase of 20-30% and more share buybacks to the tune of $7 billion.
Walmart increased its dividend by $.05 and announced another $10 billion in share repurchases:
We increased share repurchases significantly this year with buybacks of just under $10 billion, a pace we plan to continue or increase in the coming year given our view of the long-term value of the company. Source: Earnings call transcript.
Considering the larger dividend boost and larger share repurchase commitment as a percentage of market value, I rate Target the winner in the dividend and share repurchase categories.
Is TGT Or WMT Stock The Better Buy?
Target and Walmart have much in common even to the point of having virtually identical sales per store. Both have done a good job improving their business prospects over the last several years.
But Walmart, with five times the revenue and five times the number of stores, seems to me to be the more vulnerable to the possibility of a worldwide recession because of their exposure to the vagaries of non-US locations.
Target, on the other hand, has all of its stores in the US.
Potential political/social problems in the above table as indicated by the orange arrows include about 3,500 stores. That is a lot of potential problems not even counting the current inflation, logistics, and Ukraine problems both are facing at the moment.
In addition, I rate Target better than Walmart on financial metrics.
Based upon the above points I rate Target a buy and Walmart a Hold.
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Key Data Points. Starting from a much smaller base means that Target has simply posted better growth. Over the past 10 fiscal years, Target's average annual revenue gain of 4.3% is higher than Walmart's 2.7% average increase.
Walmart currently has an average brokerage recommendation (ABR) of 1.60, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) made by 29 brokerage firms. An ABR of 1.60 approximates between Strong Buy and Buy.
Expensive – According to a study conducted by business insider, Target charges about 15% more for groceries compared to Walmart, their biggest competitor.
Out of 18 analysts, 4 (22.22%) are recommending TGT as a Strong Buy, 6 (33.33%) are recommending TGT as a Buy, 8 (44.44%) are recommending TGT as a Hold, 0 (0%) are recommending TGT as a Sell, and 0 (0%) are recommending TGT as a Strong Sell. If you're new to stock investing, here's how to buy Target stock.
Walmart controls supercenters sometimes over 180,000 square feet, aiming to offer the lowest price possible. Target runs large stores as well, but they are more focused on profit margins through the supply chain, which is why they are able to post lower revenues but higher profit margins.
Total revenue has grown more than $30 billion since 2019. Comparable sales grew 2.2 percent, on top of 12.7 percent in 2021. Comparable traffic grew 2.1 percent, on top of 12.3 percent in 2021.
Valuation metrics show that Target Corporation may be undervalued. Its Value Score of A indicates it would be a good pick for value investors. The financial health and growth prospects of TGT, demonstrate its potential to outperform the market. It currently has a Growth Score of C.
In the last 90 days, 29 of 41 analysts rated WMT stock as either a buy or strong buy. Their average price target for WMT stock is $161, which implies a potential upside of 13% from the closing price on February 24, 2023.
Target was in the top 100 customer-centric companies of 2022 — Walmart wasn't.” So, while you might find a wider variety of services available at Walmart, you're likely to find better service quality at Target.
Limited international presence: Target's primary focus has been the U.S. market, and it has a limited international presence compared to some of its competitors. ...
Competition: Target faces intense competition from brick-and-mortar retailers like Walmart and online retailers like Amazon.
Low wages, inadequate healthcare, and poor working conditions are few of the issues that have been publically criticized. Large span of control – Its highly extended size and massive span of control could leave Walmart weak in some areas.
If a generous capital-allocation policy is what you're into, owning Target might make sense. The company has paid a consistently increasing dividend since 1967. And over the years, it has done a good job at repurchasing shares. This can only happen when a business generates lots of free cash flow.
The 30 analysts offering 12-month price forecasts for Target Corp have a median target of 180.00, with a high estimate of 220.00 and a low estimate of 156.00. The median estimate represents a +29.56% increase from the last price of 138.93.
Walmart Inc quote is equal to 146.420 USD at 2023-05-26. Based on our forecasts, a long-term increase is expected, the "WMT" stock price prognosis for 2028-05-19 is 177.037 USD. With a 5-year investment, the revenue is expected to be around +20.91%. Your current $100 investment may be up to $120.91 in 2028.
In 2022, Amazon closed its divide in terms of total revenue, as it generated over $513 billion in revenue, compared to over $572 billion in revenue from Walmart.
Walmart is owned majorly by the Walton family as well as institutional shareholders. The company's origin traces back to Sam Walton, so it's not so surprising that his descendants are the major owners of Walmart. The company's board comprises independent directors, Walmart executives, and members of the Walton family.
Target Corp quote is equal to 138.930 USD at 2023-05-27. Based on our forecasts, a long-term increase is expected, the "TGT" stock price prognosis for 2028-05-19 is 287.771 USD. With a 5-year investment, the revenue is expected to be around +107.13%. Your current $100 investment may be up to $207.13 in 2028.
Target shares (ticker: TGT) have been falling since last week, dragged down by the company's mixed first-quarter results. While Target topped earnings, it warned that sales would slow going forward as shoppers pulled back on discretionary spending.
The company reported plans to invest $4 billion to $5 billion in 2023 to expand its operating network of stores, its guest-centric services and supply chain facilities, while also bulking up digital experiences and other capabilities. Target plans to open about 20 new stores.
On average, Wall Street analysts predict that Best Buy Co's share price could reach $83.00 by May 11, 2024. The average Best Buy Co stock price prediction forecasts a potential upside of 15.71% from the current BBY share price of $71.73.
Walmart has received a consensus rating of Buy. The company's average rating score is 2.83, and is based on 24 buy ratings, 5 hold ratings, and no sell ratings.
Historical daily share price chart and data for Target since 1983 adjusted for splits. The latest closing stock price for Target as of May 26, 2023 is 138.93. The all-time high Target stock closing price was 257.58 on November 16, 2021.
In addition to Amgen, Inc. (NASDAQ:AMGN), other Fast Money stocks that are widely held by elite hedge funds include Tesla, Inc.(NASDAQ:TSLA), UnitedHealth Group Inc.(NYSE:UNH), and Microsoft Corporation (NASDAQ:MSFT).
The 35 analysts offering 12-month price forecasts for Walmart Inc have a median target of 169.00, with a high estimate of 180.00 and a low estimate of 145.00. The median estimate represents a +15.39% increase from the last price of 146.46.
Both Costco and Walmart are well positioned to outperform during the bear market, especially if the economy falls into a recession, but for investors, Walmart stock offers a much better value today.
The target audience of Walmart is low to middle-class rural families. These people want to shop conveniently in a single location. The price and discounts are something they look for while shopping.
The Champion(s): In all three categories—Consumer Electronics, Small Kitchen Appliances, and Cell Phones—Walmart wins the top prize in taking home unit share. Despite this edge, Best Buy gives Walmart a good run for its money and often outdoes its rival for dollar share.
Target and other chains have locked products up to deter shoplifting. But Target is one of the few chains to put an estimate on its losses, known in retail as “shrink.” Shrink also comes from employee theft, miscanned products and other errors.
Many stores, including Target, are now facing difficulties getting inventory out of seaports and into the intermodal system for delivery. They're also facing a general change in consumer shopping habits, driven by higher-than-normal inflation.
Walmart faces competition from several large retailers, including Amazon, Target, and Costco. These retailers have significant resources and a robust online presence, which makes it challenging for Walmart to compete with them. This poses a threat to Walmart's profitability as it creates options for customers.
With over 2.2 million employees worldwide, Walmart has faced a torrent of lawsuits and issues with regards to its workforce. These issues involve low wages, poor working conditions, inadequate health care, as well as issues involving the company's strong anti-union policies.
If you see any giant stock of any good company in a 10 years frame, you will see it has generated good returns in the long term. Though there is no ideal time for holding stock, you should stay invested for at least 1-1.5 years.
Target is a discount retailer with a 38% market share value. It generates stable earnings and usually performs well during an economic downturn. So, it's one of the best recession proof stocks to add to your portfolio.
A target price is an estimate of the future price of a stock. Target prices are based on earnings forecasts and assumed valuation multiples. Target prices can be used to evaluate stocks and may be even more useful than an equity analyst's rating.
One of the best things you can do for yourself is to set up a price target. Once you hit that target, it's the best time to sell your stock no matter what. That way, you'll lock in a solid profit.
The 30 analysts offering 12-month price forecasts for Lowe's Companies Inc have a median target of 232.50, with a high estimate of 290.00 and a low estimate of 151.00. The median estimate represents a +14.40% increase from the last price of 203.24.
Considering the 90-day investment horizon and your above-average risk tolerance, our recommendation regarding Walmart is 'Strong Buy'. Macroaxis provides Walmart buy-hold-or-sell recommendation only in the context of selected investment horizon and investor attitude towards risk assumed by holding Walmart positions.
Fintel reports that on May 19, 2023, UBS maintained coverage of Walmart (NYSE:WMT) with a Buy recommendation. As of May 11, 2023, the average one-year price target for Walmart is 168.08.
Based on 24 Wall Street analysts offering 12 month price targets for Target in the last 3 months. The average price target is $180.92 with a high forecast of $202.00 and a low forecast of $158.00.
The 35 analysts offering 12-month price forecasts for Walmart Inc have a median target of 169.00, with a high estimate of 180.00 and a low estimate of 145.00. The median estimate represents a +15.39% increase from the last price of 146.46.
(NYSE: WMT) Walmart's forecast annual earnings growth rate of 20.66% is forecast to beat the US Discount Stores industry's average forecast earnings growth rate of 18.05%, and while it is not forecast to beat the US market's average forecast earnings growth rate of 26.09%. Walmart's earnings in 2023 is $11,680,000,000.
Interactive chart of historical stock value for Walmart over the last 10 years. The value of a company is typically represented by its market capitalization, or the current stock price multiplied by the number of shares outstanding. Walmart market value as of May 26, 2023 is $394.24B.
Walmart currently has an average brokerage recommendation (ABR) of 1.60, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) made by 29 brokerage firms. An ABR of 1.60 approximates between Strong Buy and Buy.
But in 2023, you can expect to see even more on shelves and online, as Walmart is launching a new product line from Olive&June, an at-home nail company. According to a Jan. 5 press release, roughly 50 product varieties are now available in over 2,500 Walmart stores nationwide, as well as online on Walmart.com.
By the end of Fiscal Year 2026, Walmart believes roughly 65% of stores will be serviced by automation, approximately 55% of the fulfillment center volume will move through automated facilities, and unit cost averages could improve by approximately 20%.
Historical daily share price chart and data for Walmart since 1972 adjusted for splits. The latest closing stock price for Walmart as of May 26, 2023 is 146.42. The all-time high Walmart stock closing price was 156.76 on April 21, 2022.
Introduction: My name is Merrill Bechtelar CPA, I am a clean, agreeable, glorious, magnificent, witty, enchanting, comfortable person who loves writing and wants to share my knowledge and understanding with you.
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