Target Stock Vs Walmart: Walmart has an inspiring origin story. Founder Sam Walton was an average guy from Arkansas who operated his business based on a deep-rooted belief that success would come if he offered consumers great service and great value.
After several smaller operations, Walton opened the first Walmart in 1962. By 1967, there were 24 stores, and the company went public in 1970.
Fifty years later, Walmart is nothing short of an empire. Excluding Amazon [AMZN], it is the world’s largest retailer, boasting 11,500 stores in 27 separate countries.
Between brick-and-mortar locations and e-commerce channels, Walmart serves 265 million customers each week. This is made possible by a massive workforce that numbers more than 2.2 million.
Given Walmart’s industry dominance, Walmart stock seems to be an obvious choice for investors. However, Target shouldn’t be overlooked in this equation. Its origin story, though less well-known, is equally inspiring.
George Dayton founded the company that would eventually become Target back in 1902. His goal was to operate a business that offered quality merchandise, treated customers fairly, and demonstrated a spirit of giving in each interaction.
In 1946, Target became the second company in the country to establish a blanket policy around giving back to the communities it serves. That year, management committed to donating five percent of pretax profits to organizations working to strengthen communities.
In 1962, the first store under the Target banner opened, and by 1979, the chain’s revenues topped $1 billion for the year. Today, Target operates 1,880 stores across the United States, and it has a workforce that is 350,000 strong.
While it can’t compete with Walmart on sheer size, it has successfully attracted a loyal consumer base thanks to a collection of distinguishing characteristics.
That makes the choice for investors a bit less straightforward. In a head-to-head comparison, the bottom line question is Target vs Walmart stock: which is best?
Target Gained 10 Million New Customers
Single-focus retailers that generate revenue from discretionary goods like electronics and apparel suffered in 2020. In fact, “suffered” is an understatement. A long list of established brands have closed down most of their brick-and-mortar locations, and some have gone out of business altogether.
Analysts at Coresight Research predict up to 25,000 individual retail stores may close in 2020, which is a stunning increase from 2019’s already-high figure of 9,500.
Meanwhile, as other retailers fight for their very survival, Target has quietly offered consumers an attractive alternative.
For the first half of fiscal 2020, Target brought in more than 10 million new customers. Management estimates that Target’s increase in market share totaled $5 billion for the period.
Because it has an appealing collection of discretionary goods mixed in with necessities, shoppers spend more when they stop in for necessities.
Unlike Walmart, which has focused on expanding its share of the grocery market, Target has kept its product mix balanced between must-haves and wants.
Over the course of 2020, Target’s apparel sales went up significantly, and it has the right items in stock to take full advantage of the coming holiday season.
Industry analysts are betting that many consumers will turn to Target first, especially now that the company has launched same-day order fulfillment and transformed its e-commerce platform into a robust shopping experience.
All of that points to the likelihood that Target will generate impressive returns for investors, but there’s more. Target’s current dividend yield is at 1.8 percent, and Target has increased its dividend for 49 consecutive years. That puts the company in the Dividend Aristocrat category, which is important to income investors who have seen dividends from many of their favorites reduced or eliminated this year.
Finally, market analysts are satisfied with the current Target share price, which reflects its value and growth prospects without going overboard. In fact, some might suggest the company is undervalued given that shares sell at a price-to-earnings ratio of 21.7 while the S&P 500 is up to a price-to-earnings ratio of 27.8.
Walmart+ Is Becoming Hugely Popular
For some time now, Walmart’s biggest threat has been Amazon. Of course, that’s true of most retailers, but Walmart held on to its first place position until 2019 – an impressive accomplishment. In 2019, Amazon finally succeeded in outselling Walmart, and Forbes named it the largest retailer in the world.
Most analysts agree that Amazon’s ability to sweep up market share can be credited in large part to the Amazon Prime program.
Members get free two-day shipping on eligible items, and in some cases, items are delivered same-day or next-day. That’s hard to top, so it stands to reason that Amazon earned the top spot. However, Walmart isn’t ready to give up quite yet, and it has an answer that is expected to send sales soaring.
In October, Walmart launched its own membership program, Walmart+, and consumers are wildly enthusiastic. Huge numbers signed up in the first two weeks and now enjoy free delivery (including groceries), gasoline discounts, and a variety of other perks.
Before Walmart+ was really up-and-running, Walmart share prices had already gained 19 percent year-to-date. Considering the S&P 500 only grew seven percent in the same period, investors and analysts were optimistic about the stock.
As an essential business, Walmart thrived during COVID-related quarantines and lockdowns, and it grew revenues by 7.5 percent for the fiscal second quarter.
On the dividend side, Walmart doesn’t necessarily outshine Target, but it certainly holds its own. Dividends went up by one cent in 2020, marking the company’s 47th consecutive year of increases.
Finally, investors feel confident that Walmart is priced correctly, with a price-to-earnings ratio of 23.07.
Target Has A Better Brand Image
Target is successfully achieving its goals, and it looks good from nearly every financial angle.
Still, the biggest risk it faces is struggling to maintain or grow market share in the face of competition from Amazon and Walmart.
Both of these retail behemoths have competitor-proof membership programs, and their attention to the grocery segment keeps customers coming back.
That said, Amazon and Walmart have chinks in their armor that give Target plenty of room to continue its growth trend.
Among other issues, both Amazon and Walmart have been the subject of extensive negative publicity, political pressure, and outright boycotts as a result of their approach to managing payroll expenses in an effort to keep their prices low.
From that perspective, Target has a much better reputation, which goes a long way in today’s deeply divided culture.
Dangers of Buying Walmart
There isn’t a lot of risk when it comes to Walmart stock, as the company is particularly skillful at steamrolling its competition.
Walmart’s very size makes it almost impossible for other retailers to match Walmart’s low prices, and the Walmart+ program promises to move casual Walmart shoppers to loyal Walmart customers.
Nonetheless, Amazon is likely to continue chipping away at Walmart’s market share, which does present some risk – though nothing that should influence investors away from buying Walmart stock.
The biggest concern might be negative publicity around pay, benefits, and working conditions for Walmart’s large workforce. However, barring any stunning new allegations, those concerns are already baked into share prices.
Walmart Vs Target Stock: The Bottom Line
Both Walmart and Target have navigated the complexities of 2020 admirably, and both are positioned to grow further in coming years.
However, if you can only choose one, Walmart has a slight edge. Walmart’s brilliant Walmart+ membership program is expected to drive revenues up considerably. More importantly, given the nature of such a program, it may pull market share away from competitors like Target.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.