Target and Walmart Head in to Earnings Reports Undervalued

I have written about the retail sector on several occasions over the last six months. I have made observations about how companies with stand-alone stores have performed better than companies where the majority of stores are in shopping centers. I have also pointed out how the companies that had an online presence before the pandemic have fared better. Two companies that fit both of those criteria are Target (TGT) and Walmart (WMT).

Both companies are set to report earnings this week with Walmart reporting on Tuesday and Target reporting on Wednesday. Analysts expect both companies to see earnings growth, but Target’s earnings are expected to grow more. In the third quarter of 2019 Target earned $1.36 per share and the consensus estimate for Q3 2020 is EPS of $1.60. That would mark an increase of 17.6%. Revenue is expected to grow by 12.1% for the quarter.

Walmart’s earnings are expected to come in at $1.18 for Q3 after coming in at $1.16 in the third quarter of last year. Revenue is expected to come in 3.3% higher.

If we look at Tickeron’s screener, both companies are pretty highly rated. Walmart is rated as a “strong buy” and Target is rated as a “buy”. On the fundamental side, Walmart has three positive signals and one negative signal while Target has two positive signals and no negative signals. The two areas where both stocks score well are in the Valuation Rating and the Profit vs. Risk Rating. Both stocks are considered undervalued at this time and both of the Profit vs. Risk Ratings are below 10 and that puts them in the top 10th percentile.

On the technical side, Target has six bullish signals and not a single bearish signal. Walmart has three bullish signals and no bearish signals.

Looking at the sentiment indicators for each stock, Target has a little more skepticism directed at it than Walmart does. There are 28 analysts following Target with 18 “buy” ratings, eight “hold” ratings, and two “sell” ratings. That gives us a buy percentage of 64.3% and that is slightly below average.

Walmart has 34 analysts following it with 26 “buy” ratings, six “hold” ratings, and two “sell” ratings. That gives us a buy percentage of 76.5% and that is slightly higher than average.

The short interest ratios for both companies are below average with Target’s at 2.4 and Walmart’s at 1.5. The average short interest ratio falls in the 3.0 range. What the buy percentages and the short interest ratios suggest is that there is slightly more optimism on Walmart ahead of the earnings reports. The optimism isn’t at an excessive level, but it could mean that expectations for the company are a little higher than they are for Target. If expectations are too high and can be difficult for the company to post numbers good enough to drive the stock higher.

The comprehensive head-to-head comparison shows how the two companies stack up against one another.