By Teresa Rivas
Walmart is known for low prices, but with rival big-box store Target turning in yet another set of disappointing quarterly results, its stock looks increasingly worth paying a premium for.
Target had its worst day in years on Wednesday. The company's fiscal third-quarter results missed expectations, as did its outlook for the current quarter, which spans the holiday shopping season. And management was downbeat about consumer spending, saying weaker demand for discretionary items like home goods and apparel weighed on profits.
All that contrasts with the positive commentary Walmart offered a day earlier. Chief Financial Officer John David Rainey said its customers in the U.S. aren't pulling back, with consistent spending patterns over the past four to six quarters.
Barron's has long been bullish on Walmart. We said in July 2023 that the retailer seemed poised to pull ahead of the pack thanks to investments in tech and a strong reputation for value.
Given all that, it isn't a surprise that shares of Walmart and Target have gone in different directions this year. While Walmart has surged nearly 65%, Target has fallen some 14%. The upshot is that Walmart now trades at some 32 times forward earnings, compared with 15 times for Target.
That may be a hard gap to swallow, but as the most recent results show, you get what you pay for. Although cooling inflation has given Americans more breathing room, many still prize value above all else, giving Walmart the edge.
Walmart's long-term investment in beefing up its grocery business is paying dividends too. Numerator, a consumer data firm, estimates that the company accounted for more than 21% of the grocery market over the past year, putting it easily ahead of Kroger, which ranks second at 9.3%. And this is happening at the same time that alternative revenue streams, such as advertising and membership fees for Walmart+, are getting bigger.
Target's "anemic topline results in the third quarter highlight that [its] 'last cut' might not be in yet as the business struggles with a combination of weather, share loss and trade down," wrote Bernstein's Ivan Holman in a research note on Wednesday. U.S. comparable-store sales figures make clear what is happening: Walmart's rose 5.3%, while Target's gained 0.3%.
Compare that with the latest comments from TD Cowen analyst Oliver Chen. He reiterated that Walmart is one of his favorite ideas among the stocks he covers, saying, "Walmart's focus on a trifecta of everyday low price value, technology, and convenience is driving profitability faster than growth."
While bargain hunters may debate whether Target stock is worth buying after it plunged 21% on Wednesday, Walmart shareholders have plenty to be thankful for heading into the holiday season. They seem willing to pay the price.
Write to Teresa Rivas at teresa.rivas@barrons.com
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(END) Dow Jones Newswires
November 20, 2024 13:04 ET (18:04 GMT)
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