Shaun Pruitt
·4 min read
Quarterly reports from big retailers will highlight this week’s earnings lineup with Target (TGT) and Walmart (WMT) set to report their first-quarter results on May 17 and 18 respectively.
Wall Street will be looking to see if both omnichannel retail giants can keep moving past inflationary concerns and inventory issues over the last year. Both stocks are off to solid starts in 2023 with Walmart shares up +7% year to date to roughly match Target’s +8% and the S&P 500’s +9%.
With that being said, let’s see if now is a good time to buy Walmart or Target stock as earnings approach.
Image Source: Zacks Investment Research
Target Q1 Preview
Set to release its first-quarter results on Wednesday, Target’s earnings are expected to decline -20% year over year at $1.74 per share compared to EPS of $2.19 in Q1 2023. Sales are forecasted to be up roughly 1% at $25.34 billion.
The earnings decline from the prior-year quarter is thought to be attributed to a slowdown in consumer discretionary spending as inflation still lingers despite signs of easing.
It is also important to note the Zacks Expected Surprise Prediction (ESP) indicates Target could slightly miss its bottom line expectations with the Most Accurate Estimate having Q1 EPS at $1.72.
Image Source: Zacks Investment Research
Walmart Q1 Preview
Pivoting to Walmart’s Q1 report on Thursday, earnings are projected to be up 1% YoY at $1.32 per share. First-quarter sales are forecasted to rise 5% from Q1 2023 at $149.49 billion.
The quarterly growth on the top and bottom line may be an indication that consumers continue to seek Walmart’s cost-saving products amid higher inflation rather than Target’s higher-quality retail items.
Plus, Walmart is expected to top earnings expectations according to the Zacks ESP with the Most Accurate Estimate having Q1 EPS at $1.33 and 1% above the Zacks Consensus.
Image Source: Zacks Investment Research
EPS Growth & Outlook
With both Walmart and Target striving to move past inflationary concerns, monitoring their growth will be important for investors.
In this regard, Target’s earnings are anticipated to continue rebounding and climb 37% in its current fiscal 2024 at $8.27 per share compared to EPS of $6.02 in FY23. Even better, FY25 earnings are projected to rebound another 26% at $10.47 per share.
Based on Target’s FY25 projections the company would have an EPS growth rate of 11% over the last five years with 2021 earnings at $9.42 per share. This is much slower than in the past as Target looks to regain its footing after being largely impacted by the economic slowdown.
Image Source: Zacks Investment Research
Turning to Walmart, earnings are expected to dip -3% in its current FY24 but rise 10% in FY25 at $6.76 per share. More importantly, Fiscal 2025 would represent a 23% EPS growth rate over the last five years with 2021 earnings at $5.48 per share.
Image Source: Zacks Investment Research
Performance & Valuation
Investors are hoping that strong first-quarter reports can help Walmart and Target stocks get their historical mojo back. This is especially true for Target, with shares of TGT still down -25% over the last year to largely underperform Walmart’s +15% and the S&P 500’s +1%.
However, over the last five years, Target’s +112% has topped Walmart’s +80% with both outperforming the benchmark’s +54%.
Image Source: Zacks Investment Research
When looking at their price-to-earnings valuations, Target stock is more attractive than Walmart at the moment despite its lackluster performance over the last year. Trading at $160 a share and 19X forward earnings, Target stock trades on par with the S&P 500’s 19.1X with Walmart’s P/E valuation above the benchmark at 24.9X and $151 a share.
Image Source: Zacks Investment Research
Bottom Line
Going into their first-quarter reports Target and Walmart stock both land a Zacks Rank #3 (Hold). There could certainly be more upside in both stocks but this will largely depend upon their Q1 results and ability to offer positive guidance.
Undoubtedly, Target and Walmart continue to be very viable retail investments as leading omnichannel players. Furthermore, as they strive to move past inflationary concerns investors should be rewarded for holding their stocks with Target standing out from a valuation standpoint although the economic environment has been more favorable for Walmart.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Target Corporation (TGT) : Free Stock Analysis Report
Walmart Inc. (WMT) : Free Stock Analysis Report
