Walmart Stock: Is WMT a Better Buy Than Target? (TGT)

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Over the past ten years, the performance of both Walmart (WMT) and Target (TGT) has trailed that of the S&P 500, up over 61%. In comparison, Walmart stock has risen 39%, while Target stock is up 37%.

Walmart Stock: Is WMT a Better Buy Than Target? (TGT)Due to this performance, some investors have written off both stocks, while others may see this as an opportunity. If you are in the latter camp, the question is: Which of the big-box retailers should you buy, Target or Walmart stock?

First let’s take a look at what’s holding each stock back in the current market, and then which one has the best long-term prospects moving forward.

Walmart Stock (WMT)

For the most recent quarter, Walmart posted $120 billion in revenue, up from the $119 billion WMT posted during its Q2 FY2015 earnings. Walmart’s earnings clocked in at $1.08 per share, which was down from $1.21 during the same period last year. While sales may have risen, dwindling earnings aren’t a positive sign for the once-dominate retailer.

Currency headwinds make for one of the largest drags on owning Walmart stock today. But while Walmart still receives roughly a quarter of its income from overseas — and took a $1.68 billion loss from currency translation in Q1 — Walmart shaved approximately 9.6% of its business from international markets.

That’s a good play, but Walmart’s still getting a ton of business overseas; and with China aggressively devaluing its currency, this will likely continue to be a major issue for Walmart stock moving forward.

But what Walmart’s balance sheet or earnings report can’t tell you, however, is that the company’s image may be its biggest long-term risk.

Walmart’s slogan — “Save money. Live Better” — promotes that idea in its customer’s minds. As we have seen in other industries, such as with McDonald’s (MCD), the low-cost, value proposition is no longer working, as Mickey D’s has been undercut by fast-casual restaurants in the vein of Chipotle (CMG).

While there are still some consumers who display little-to-no brand loyalty, and will buy anything if the price is right, many of today’s customers want quality products (not something Walmart is exactly known for) and are willing to pay a bit of premium for them. That’s something they can go to Target for.

Target Stock (TGT)

Two years ago, Target customers were informed of a major data breach resulting in the theft of millions of credit cards during the holiday shopping season. The situation went from bad to worse after it was reported that the company had knowledge of the breach well before it released the information to the general public. This in turn led to lower store traffic in the coming months, as customers lost faith in management. And for a high-volume retailer, low store traffic is a death sentence. Target soon posted plummeting revenue and a loss in earnings per share.

Another red market for Target stock came earlier this year when the company announced it would be pulling out of Canada. The decision was made after the company failed to find a scenario in which it would be able to make its 133 Target Canada stores profitable before the year 2021. The move certainly helped TGT’s balance sheet and overall earnings.

Target’s latest earnings report showed a company that has grown earnings from 78 cents during this time last year to $1.22 per share, which beat the $1.11 consensus. This prompted Target to raise its full-year guidance, from $4.50 to $4.65 to $4.60 to $4.75.

So Who Should You Buy?

While Walmart stock has been hurt due to its international business lately, Target’s lack of possible international growth is a big concern of mine over the long term. Eventually, if not already, Target will no longer have new opportunities for expansion within the U.S., and it has yet to prove it can flourish internationally.

But while Walmart stock has the international expansion advantage, its image and brand will likely continue to hurt the stock and is a much higher hurdle to overcome.

Target stock is currently trading at a forward price-to-earnings ratio of 14.6 compared to Walmart’s 13.3. But with new management post-hack, a more polished product and brand name offerings, Target stock is up 30% over the past 12 months while Walmart stock is down 15%.

This trend shows no signs of slowing, which is why Target stock gets the nod and should be the big-box retailer in your portfolio.

As of this writing, Matt Thalman did not hold shares of any company mentioned above.  Follow him on Twitter at @mthalman5513.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/09/walmart-stock-wmt-vs-target-stock-tgt-better/.

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