Is Walmart or Target a better stock?
It's tempting to recommend Target, with its cheaper valuation and a business that is turning around. But Walmart's demonstrated resilience in 2023 and its strong momentum going into 2024 justify its stock's higher valuation. At the two stocks' current valuations, Walmart stock looks like the better buy.
Walmart isn't known for its impressive profit margins, but the chain's earnings power is improving. Operating income spiked in the past year and is projected to outpace revenue again in 2024. It's great news for the business, meanwhile, that these gains arrived even as the company cuts prices amid strong sales growth.
Target is expecting to return to growth in 2024, and investors like the company's trends. Target's (TGT -1.21%) earnings showed the company making progress on margins, and investors are cheering the expected return to growth in 2024.
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.
Recent research from Numerator puts Walmart's U.S. grocery market share at 25.2%, up from 23.7% in 2021. Walmart's market share is larger than the combined total of its next two largest rivals, Kroger KR -0.1% (10.7%) and Costco (9.9%). Target's grocery share dipped from 3.1% to 3.0% percent during the same timeframe.
Walmart. In 2022, Target generated over $109 billion in revenue, mostly from its stores, compared to $572.7 billion form Walmart, coming from stores, e-commerce and Sam's Club.
To get a sense of what that sort of underperformance looks like on an account statement, have a look at the chart below. This chart illustrates the disconcerting fact that if you invested $1,000 in Walmart stock 20 years ago, today it would be worth only about $4,400.
The retailer isn't nearly as risky to own as many of its high-growth stock market peers. And it has a good chance of boosting its earnings power over the next several years. All of that is available at a valuation that might seem like a steal in just a few years.
Walmart is surging after crushing earnings estimates Thursday morning, adding about $12 billion to the wealth of the Walton family. An investment of $1,000 at the start of 1980 would be worth over $1.9 million today. Watch Walmart stock trade in real time here.
TGT is a #2 (Buy) on the Zacks Rank, with a VGM Score of A. Additionally, the company could be a top pick for growth investors. TGT has a Growth Style Score of A, forecasting year-over-year earnings growth of 5% for the current fiscal year.
Is Target a good stock to buy and hold?
Is Target stock a Buy, Sell or Hold? Target stock has received a consensus rating of buy. The average rating score is and is based on 61 buy ratings, 34 hold ratings, and 1 sell ratings.
TGT is currently sporting a Zacks Rank of #2 (Buy), as well as an A grade for Value. The stock has a Forward P/E ratio of 16.17. This compares to its industry's average Forward P/E of 29.25. TGT's Forward P/E has been as high as 19.21 and as low as 12.31, with a median of 15.02, all within the past year.
It's tempting to recommend Target, with its cheaper valuation and a business that is turning around. But Walmart's demonstrated resilience in 2023 and its strong momentum going into 2024 justify its stock's higher valuation.
Brand Perception
Rather than get sucked into the undertow, Target made the choice to distinguish its brand rather than compete on price. The big box chain reinvented itself as a more fashionable alternative to Walmart, justifying slightly higher prices with a more luxurious-feeling shopping experience.
Comparable sales dipped 4.4%, a continuation—albeit slowing—of a downward trend for Target. Things aren't likely to turn around soon. The company expects a 3-5% sales decline in 2024's first quarter, according to its fourth-quarter earnings report.
The closest competitor to target.com are walmart.com, wayfair.com and kohls.com. To understand more about target.com and its competitors, sign up for a free account to explore Semrush's Traffic Analytics and Market Explorer tools.
Target Is Growing Its Owned Brands
Walmart has taken a more traditional house-brands approach, where value is the core offering. Target, however, has worked steadily to make its house brands exciting in ways that create value rather than making them feel like a price-based compromise.
The problems the company has faced have been enormous: The Covid-19 pandemic and the inflation surge that erupted after the pandemic eased. Too much inventory in 2022 and, worse, inventory customers didn't want. More than half the inventory in 2022 was in discretionary goods.
Walmart did not fail to acquire Target, as there were never any formal talks of a merger or acquisition between the two companies. Walmart's acquisition of Whole Foods is also not accurate, as Whole Foods was actually acquired by Amazon in 2017.
The result is the number of years, approximately, it'll take for your money to double. For example, if an investment scheme promises an 8% annual compounded rate of return, it will take approximately nine years (72 / 8 = 9) to double the invested money.
Is Walmart a good long-term stock?
WMT is a #3 (Hold) on the Zacks Rank, with a VGM Score of A. Additionally, the company could be a top pick for growth investors. WMT has a Growth Style Score of A, forecasting year-over-year earnings growth of 6.3% for the current fiscal year.
| Rank | Company | 20 Year Return |
|---|---|---|
| 1 | Apple | 59,918% |
| 2 | Monster Beverage | 59,299% |
| 3 | NVIDIA | 28,712% |
| 4 | Intuitive Surgical | 18,221% |
At that price, investors are paying a lot for Walmart's modest growth prospects. Walmart is a safe stock that has a long track record of raising its dividend, but investors should understand that that's what they're paying up for. For the right kind of investor, Walmart is a smart buy.
The Rating Outlook is Stable. Walmart's ratings reflect its dominant global retail market share position, with over $600 billion of revenue in 2022, positive comparable store sales (comps), and consistent financial strategy, which has resulted in stable EBITDAR leverage around 2x.
Brand Recognition: Walmart's strategies for ecommerce success is due in large part to its well-known brand and image as a reliable store. People are more likely to buy from a name they know and trust online. Competitive Prices: Online users like Walmart are committed to having low prices.
