Retailing Smackdown: Wal-Mart vs. Target
Both are mending, but only one looks like a profitable short-term bet.
By Dan Burrows
Being a discount retailer coming out of the dot-com recession of a decade ago was a pretty good place to be. Wal-Mart (WMT) and Target (TGT), the two biggest discount chains, were sitting pretty and offering investors defense as cash-strapped consumers traded down from department stores in search of bargains and everyday low prices.
My, how times have changed. Wal-Mart, the world's biggest retailer, and Target, the chic-cheap discounter, are just now regaining their footings in the long aftermath of the Great Recession.
New competition in the rise of the dollar stores and online retailers like Amazon (AMZN) is partly to blame. But it's also the case that low-income customers have been disproportionally hammered by joblessness, high gas prices and a housing market that's fallen and can't get up.
Wal-Mart's stock jumped Thursday after the company's latest quarterly earnings beat expectations, and Target's latest results beat the Street, too. In both cases, the retailers showed indications that they're making the necessary adjustments to get back on track in the toughest economic environment they've ever faced.
Sure, doubling down on discounts or everyday low prices helped drive revenues, but only by putting already thin profit margins in jeopardy. And although a warm spring, early Easter and easing gas prices helped Wal-Mart and Target rebound from a weak end of 2011 to post solid first-quarter results and outlooks, those boosts don't guarantee a thing as we head into the second half of the year.
So which stock is a better buy right now? Let's take a look at some key metrics to decide which one appears to offer more upside over the next 12 to 18 months:
Revenue growth: Target
Analysts, on average, forecast Wal-Mart's revenue to grow 5.6% this year and 4.5% next year. Target's top line is expected to grow just 4.9% this year but then expand handsomely to 5.5% in 2013. The market is forward looking, so Target wins by a nose on accelerating revenue growth.
Profit growth: Target
Wall Street forecasts Wal-Mart's profit to increase 8.2% this year and 8.6% in 2013. Target, meanwhile, is expected to grow earnings by just 0.5% this year before bouncing back to 13.3% next year. Wal-Mart offer steady, incremental growth, but Target is expected to posts huge year-over-year gains -- always a nice catalyst for a stock. Furthermore, Target's five-year growth forecast stand at 11%, better than Wal-Mart's estimate of 8.3%.
Wal-Mart trades at a 13% discount to its own five-year average on a forward earnings basis and a 5% discount by trailing earnings, according to data from Thomson Reuters Stock Reports. Target trades at an 18% discount to its own five-year average on a forward earnings basis and a 12% discount by trailing earnings. That makes Target look to be the better bargain.
Price targets: Target
Analysts' median price target on Target stands at $65, according to Thomson Reuters data. Add in the dividend, currently yielding 2.2%, and the implied upside comes to 21% in the next 12 months or so. Wal-Mart's median price target stands at $64. Add in the dividend yield of 2.7%, and the implied upside comes to 5.3% in the next 12 months or so.
Share-price momentum: Tie
Based on one-, three- and six-month relative strength and seasonality factors, both Wal-Mart and Target display price momentum that's relatively in-line with broader market performance.
Verdict: Given its accelerating revenue and profit profile and more compelling valuation, Target appears to have more upside in the next 12- to 18-months. Keep in mind, however, that despite having similar betas (or volatility metrics), Target has taken investors on a much wilder ride over the previous three-, five- and 10-year periods.
If you're bullish on the economy and market, Target is a better offensive play than Wal-Mart. However, if you're looking to play defense, Wal-Mart's superior dividend and relative share-price stability make it a solid choice for investors keen on equity income.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
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Why would I care? They both have been part of the demise of small mom and pop stores and brought the monopoly power of big business to import trinkets, and export our jobs.
Remember when Wal-Mart used to brag "Made in the USA" and wave their flag proudly?
What a joke! They all sold us out, with their corporate leaders, with our governments help and the funding of the crooked banking cartel.
Time the US got back to work building quality products again instead of being seen as just fat lazy consumers and global warmongers.
Sorry, I call them as I see them, and what I see disgusts me.
I won't step foot in a Walmart store after what we experienced on multiple occasions.
I love Target for their great prices, cleanliness and customer treatment along with their return policy.
Looks like a tie to me...both can have 34 check out lanes..and ONLY 2 (two) clerks
working the front....
I would pick Target, they use the English language over their PA system, not Spanish...?
I actually tested out the pricing and found that Target and Walmart are comparable - that the megastores have more choices than our local grocery stores and are WAY less expensive. My weekly shopping for our family of four costs at least $50 less at Target and Walmart then at most of the others - for the same brands. For example, our favorite juice is $1.95 at T & W, but over $4 at Vons, Ralphs, Albertsons, Giant, Safeway, etc. Outrageous! When my children were in diapers, the price at T & W was $8.95 but nearly $13 at the others. This adds up. Costco and some of the other big bulk stores don't have the variety. Sorry folks, but you cannot buy produce at Amazon. And the mega stores for Walmart and Target both have decent produce, meats, bakery, etc.
Between the two, however, my opinion is that in general Target stores are cleaner, have better informed employees (what they have in stock and where to find it), and much better customer service (including having enough lanes open so that you don't have to wait as long in line.) While I do shop at Walmart because there are actually a few products I have only been able to find there, I often leave feeling stressed out and with a headache. Target is usually a pleasant shopping experience.
Where I live Target and Walmart are next door neighbors and I primarily shop at Target and Kmart. One thing I do enjoy Walmart for is there prices on automotive supplies and parts (tires included). The biggest thing I dislike about Walmart are the other customers lol...brings out the worst of the trashiest people (see "the people of walmart" website for reference).
Walmart stock should go up, they now will only hire part time ,no full time associates unless your in management..that way no benefits paid. insurance or 401 yeah way to go..you ca not even transfer if you are a full time associate you only can get part time..
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The solid report comes a month after the retailer closed all of its Canadian operations.
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