As retail companies attempt to navigate the constantly changing e-commerce and brick-and-mortar landscapes, two powerhouse companies—Wal-Mart (WMT - Free Report) and Target (TGT - Free Report) —have started to regain solid footing.
Retailers are in the midst of their most important quarter—and one that could set traditional retail back, if the likes of Amazon (AMZN - Free Report) dominate the holiday season. And although the e-commerce giant has devastated some retailers, it might have also forced some to make big changes that will help prove vital today and down the road.
Recently, Walmart began—if not by choice, by necessity—to fight back against online retail’s proliferation with a massive expansion into e-commerce and speedy delivery.
With on the fly tweaks to its business model, Walmart has regained investor confidence. Now, let’s take a look at Walmart’s current fundamentals and see how it stacks up against another, somewhat different retail star: Target.
The company recently announced that it renewed its fiscal 2018 guidance and projected strong new sales and revenue goals for fiscal 2019. Walmart’s new longer-term confidence stems in part from a push into e-commerce that includes plans to add 1,000 more online grocery locations domestically (also read: Wal-Mart (WMT - Free Report) Hits 52-Week High, Grocery Stocks Follow).
Walmart is committed to enhancing its online sales and delivery services instead of adding more locations domestically. The company expects to open less than 25 U.S. stores in fiscal 2019, while opening roughly 225 locations in faster-growing regions, such as China and Mexico.
Walmart is currently a Zacks Rank #2 (Buy) and sports an “A” for both Growth and Value in our Style Scores system, helping it earn an overall “A” VGM grade.
The company is trading at 18x earnings, which is above the “Retail – Supermarkets” industry average but is still solid overall. Walmart’s 3.01 P/B ratio and P/S ratio of 0.48 also don’t mark discounts to the industry, but they help prove that it is still a reasonable value play.
Walmart has experienced a 14.29% year-to-date price change that crushes the industry’s 1.17% decline and tops the S&P 500 average. Its stock price now rests atop a new 52-week high at $84.88 per share.
Investors who worry that the company might have a hard time breaking through a new threshold might consider some of our current Walmart projections. Within the last 60-days, the company has experienced three positive earnings estimate revisions for next quarter, along with one downward change. Walmart has earned seven positive revisions for its full-year, along with no negative revisions, during this same time frame.
Based on our current consensus estimates, Walmart’s revenues are projected to jump 2.42% in the current quarter, 2.92% next quarter, and 2.11% for the year, ultimately reaching an upward estimate of $499.24 billion. The company’s earnings are expected to dip over 1% in the current quarter but jump 1.36% for the year, and 5.25% for its next fiscal year.
For one, this Minneapolis-based retail power is set to up its holiday hiring push by 40% this year. Target hopes to add 4,500 more employees to its distribution and fulfillment centers—on top of adding 100,000 overall—in order to more quickly refill products in stores, and maybe more importantly, help carry out its new online sales push. Target’s online sales climbed 32% in the second quarter.
Aside from expanding its e-commerce business, the company has updated its efforts to do what it does best: sell an upscale feel at affordable prices. Target recently launched a new multi-year partnership with HGTV's widely popular home remodeling show Fixer Upper, debuted a new modernist design-focused furniture and home décor line dubbed Project 62, and added three new clothing lines.
Target has also started to invest $7 billion to help remodel stores and open small-scale locations in major metropolitan areas. On top of that, Target cut prices on basic items, from cereal and baby formula to razors and paper towels, to help better compete with Amazon.
Target is currently a Zacks Rank #2 (Buy) stock and scored “A” grades for both Growth and Value in our Style Scores system.
Target is trading at only 12.75x earnings, which marks a substantial discount compared to the “Retail – Discount Stores” industry average. Its 2.81 P/B ratio comes in well below the industry’s 3.91 average, while its 0.42 price to sales figure also marks a discount. These three figures help illuminate the fact that in spite of—or perhaps because of—its struggles, Target presents a strong option for value-minded investors.
The company has received six upward earnings estimate revisions and no downward changes for its current quarter, all within the last 60 days. In this same timeframe, Target earned nine full-year upward earnings estimate revisions and no negative revisions.
Target’s sales are projected to gain 4.69% next quarter and 1.44% for the year to reach $70.91 billion, based on our current consensus estimates. However, in terms of earnings, Target is set to see double-digit year-over-year declines for its current quarter and for the year.
Both Target and Walmart are currently Zacks Rank #2 (Buy) stocks with great VGM scores. They are also both heading into their most vital quarter with improved e-commerce businesses to boot.
Yet, because of Target’s projected earnings decline, on top of the fact that its shares have tanked 21% this year, investors who consider growth and momentum trends might chose Walmart stock.
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