Dump Target in Favor of Wal-Mart

2015 may not have been a great year for retailing giant Wal-Mart (WMT), but the company is performing very well this year. In the most recent quarter, the company shared earnings per share of $1.07, $0.05 higher than the analysts’ estimates. On the sales front, the company’s revenue came in at $120.90 billion, a surge of 0.6 percent year-over-year.

On the other hand, Wal-Mart’s foremost competitor, Target, reported revenue of $16.17 billion, a drop of 7.2 percent year-over-year. Due to the recent developments, Oliver Chen, an analyst from Cowen, has changed his ratings for both Wal-Mart as well as Target.
In the case of Wal-Mart, he upgraded his rating from market perform to outperform. On the contrary, he lowered his rating on Target from outperform to market perform.

This downgrade doesn’t really seem surprising as Target has posted year over year revenue declines for three successive quarters, and the deficits are hastening. Comps sales are destructive, and Chen details that recent initiatives to fortify pharmacy and grocery are not resonating with shoppers. Chen also reported that Target is losing market share to Wal-Mart.

As a matter of fact, if Target is mislaying share to Wal-Mart and other online retailers, it is likely a great thing that Wal-Mart is buying Jet.com to make its presence robust in the dot-com game.
Dump Target in Favor of Wal-Mart
Image by MichaelGaida / Pixabay
And this is the main reason why Chen changed his stance on the world’s largest retailer.

Apart from this, a few days earlier, Wal-Mart started online grocery pickup in four stores in Minneapolis, with a fifth outlet to start two months later. The start of service in Minneapolis is prominent with the stores not far from the headquarters of Target. Furthermore, the company detailed that approximately 30,000 Wal-Mart items are adequate for online grocery pickup, and the minimum eligible amount per order is $30.

In contrast, earlier this year, Target decided to place emphasis on its Instacart partnership in place of a store pickup service. Sales at Wal-Mart are much better than Target, as U.S comps have been positive for eight successive quarters, and the crowd is also increasing.

Looking ahead, I expect this trend to continue. I think Wal-Mart is a much better buy than Target at this point in time. Given the growth trends, I expect Wal-Mart to continue outperforming its smaller rival, which is impressive given Wal-Mart’s huge size. Hence, I think investors should dump Target in favour of Wal-Mart.
Published on Sep 30, 2016
By Akshansh Gandhi

Copyrighted 2020. Content published with author's permission.

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