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Breaking Down Walmart (WMT) Vs. Target (TGT) Stock Before Earnings

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After last week, 71% of S&P 500 retailers had beaten Zacks EPS estimates. Investors are hoping that Target (TGT - Free Report) and Walmart’s (WMT - Free Report) earnings reports on November 16 and 15, respectively provide another boost to that figure and top estimates.

Individually their Q3 reports will help investors gain a clearer picture of which stock may be better for their portfolio going forward. Let’s see what’s going on with Target and Walmart stock before they report.

Inventory Issues

Both companies have dealt with inflation-related issues throughout the year. TGT stock had a drastic drop after Q1 earnings as excess inventory led to the company selling products at steep discounts. Profits dropped as consumer spending was already slower due to rising inflation. This was compounded by Q2 earnings also missing expectations.

Target’s Q1 miss reinforced a Walmart selloff after they also reported disappointing first quarter results the day before TGT’s release. WMT was able to recover and beat Q2 expectations. However, after seeing higher than usual inventory of their own last quarter, Walmart stated this is something the company will be working on in 2023 as well.  

In September Walmart CEO Doug McMillon said supply chain problems and now inventory shortages are the most rigid in 30 years. Target surprisingly stated it was past its inventory issues last quarter but this will be something investors will want to monitor for both companies going forward. 


Recent Performance

Over the last year, Walmart shares have acted somewhat defensive and have recouped most of the losses following the drop after Q1 earnings. Target’s Q1 fall was so steep that TGT is still down -34% over the last year vs. WMT’s -6% and the benchmark’s -16%.

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Image Source: Zacks Investment Research

However, over the last month leading into Q3 earnings, TGT stock has gained momentum up +16% to outperform WMT and the benchmark shown in the cart below. TGT is still down -25% YTD, underperforming WMT’s -4% and the benchmark’s -17%.

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Image Source: Zacks Investment Research

Growth & Outlook

The Zacks Consensus Estimate for TGT’s Q3 earnings is $2.14 per share, which would be a decline of -29% from the year prior quarter. Sales for Q3 are expected to be up 3% at $26.36 billion. This is an indication that operating costs are weighing on Target’s profits although the company says inventory issues are behind it.

For TGT’s current fiscal year, earnings are forecasted to drop -40% at $8.09 per share, with revenue up 3% to $109.79 billion.

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Turning to WMT, the Zacks Consensus Estimate for Q3 earnings is $1.31 per share, which would be a decline of -9% from Q3 2021. Sales for Q3 are expected to be up 5% at $147.40 billion. This may be a slight indication that operating costs are weighing down the company’s bottom line in a tougher overall economic environment.

For WMT’s current fiscal year earnings are projected to decline -9% at $5.85 per share, with revenue up 5% to 600.64 billion.

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Image Source: Zacks Investment Research

Although not shown in Target’s EPS picture charts, TGT’s fiscal 2024 estimates are stronger than WMT’s. Target’s bottom line is projected to grow 49% in FY24 to $12.11 vs. WMT’s expected 11% growth at $6.51 per share.

Revenue growth for FY24 is roughly the same for both companies, with sales expected to be up 3%. While Walmart may continue having a stronger year, Target’s expected return to growth in FY24 could start making up for the slack this year.

Over the last five years, TGT’s growth rate of 22.7% has stretched beyond WMT at 7%. Target’s growth rate has also beaten the S&P 500’s 13.4%. 


Turning to valuation, both companies sport “B” grades for Value in the Zacks Style Scores system. TGT currently trades at a 21.4X forward earnings multiple, nicely below its decade-high of 26.8X. In comparison, WMT trades at a 24.3X forward earnings multiple, solidly below its decade-high of 28.1X.

From a valuation standpoint, Target looks more attractive relative to Walmart going into Q3 earnings. That said, their future earnings growth or lack there of could recalibrate their earnings multiples.

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Image Source: Zacks Investment Research


Both stocks have strong dividends, having increased them in each of the last five years. However, the TGT dividend trumps WMT. TGT offers investors a 2.49% annual dividend yield at $4.32 per share, which is considerably higher than WMT’s 1.57% at $2.24 per share.

WMT’s annual dividend yield is on par with its Retail Supermarkets Industry average of 1.58% but TGT’s dividend is above its Retail-Discount Stores Industry average of 1.06% and Walmart’s Industry average as well.

Bottom Line

Both TGT and WMT land a Zacks Rank #3 (Hold). Considering which stock to add to the portfolio could very well depend on investors’ risk tolerance and time horizon. Short term, WMT stock may be less volatile than TGT and this has been especially true over the last year. However, TGT’s growth and dividend trump WMT, and Target is more attractively valued at current levels.

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