Why does Walmart have the edge on Target?

This week’s retail earnings kicked off during a difficult period for the industry. Goal (TGT) reports earnings early Wednesday while giant Dow Jones Walmart WMT announces the results Thursday morning. Wal-Mart shares are trading in buy territory ahead of their report.


Inflation pressures are hitting consumers’ wallets hard, leaving less in the budget for discretionary spending. Consumer sentiment fell 9.1% from April to a reading of 57.7 in May, according to preliminary results from the University of Michigan’s monthly survey of consumers. The index hit a record low of 50 last June.

As die-hard spenders look to cut back, analysts believe Wal-Mart has an edge over rival Target.

Following Wal-Mart’s fourth-quarter earnings report, Third Bridge analyst Landon Luxembourg wrote: “During the pandemic, retailers like Target benefited from the consumer’s swap mindset. Now, with shoppers becoming more cost-conscious and trade-offs less, Wal-Mart is perfectly positioned for the benefit.”

On Monday, Credit Suisse noted that it believes Walmart remains in a strong position in the current environment with strong defensive characteristics as headwinds to inflation cause consumers to prioritize value and consumables over discretionary products.

The company believes Wal-Mart should have strong sales momentum, driven by food sales and market share gains. Credit Suisse has a rating outperforming Walmart stock with a price target of 170.

Target profits: lower the price

Meanwhile, Raymond James cut Target’s stock price target to 190 from 195 on Monday but maintained a Strong Buy rating on the shares. Analyst Bobby Griffin writes that Target’s long-term margin recovery looks favorable and the company believes the company can maintain market share across multiple product categories.

But the near-term outlook is less favorable as consumers reduce their wants and focus spending on needs.

In the fourth quarter, beverage and cosmetic sales supported target results.

Griffin also expects higher promotional activity in the current environment. Increased promotions usually mean more deals and discounts for customers, and this can reduce margins.

Target reports earnings early Wednesday. The company’s earnings fell last year and Target averages a quarterly earnings per share decline of 55% in 2022.

Analysts polled by FactSet expect earnings target to fall 19.2% to $1.77 per share on sales of $25.27 billion. Same-store sales are expected to rise 0.2%, down from 3.3% last year and 0.7% in the fourth consecutive quarter.

The target stock fell by 2.3% during Tuesday’s trading, to 156.95, ahead of the results. Stocks fell below the 50-day moving average and the 200-day line on the move. The stock is still holding its 10-day and 21-day lines.

TGT stock is up 5.3% since the start of the year.

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Dividend Acceleration for Wal-Mart Stock

Wal-Mart giant Dow Jones’ earnings have accelerated in the past three quarters, improving from a 23% drop last year to a 12% jump in the fourth quarter. Sales growth stalled in the low single-digit range during that period.

Analysts expect Walmart’s earnings to rise 1.5% to $1.32 per share on a 5.1% increase in revenue to $148.8 billion.

Same-store sales are expected to rise 5.5%, up from 3% last year, but down from 8.3% in the fourth quarter.

Wal-Mart stock is trading in a double-bottom buy zone after crossing the buy point of 148.44 on April 3. The current buy zone, which extends 5% beyond the buy point, is at 155.86.

Stocks were consolidating in the overbought area just above the top of the base. The current double bottom pattern forms the handle of a huge handle cup base from last April. This pattern has 154.74 buy points if WMT stock can pass the strict measures around 154.64 level from late November.

Walmart has a composite rating of 89, which combines a number of technical indicators into a single score. The stock’s RSI is off its highest levels since late April. The stock has a rating of 83 RS and 83 EPS.

WMT shares fell 1.4% during Tuesday’s trading, at 149.77. Shares are up 5.6% this year.

You can follow Harrison Miller for more stock news and updates on Twitter @tweet

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