Target Corporation (NYSE: TGT) has so far outperformed Walmart Inc (NYSE: WMT) this year but the tables will turn in the coming weeks, says Greg Melich – Analyst at Evercore ISI.
Walmart Inc is expected to report $1.52 a share of earnings for its fourth financial quarter next week; roughly the same as last year.
Year-to-date, Walmart stock has returned hardly 2.0% but the very lag is part of the reason why Melich expects it to do well post earnings. On CNBC’s “Closing Bell: Overtime”, he added:
They have good momentum in terms of rebuilding traffic. They’re leaning into their strength as a strong value proposition retailer for middle- and lower-income America. [So,] the underperformance could unwind in the next week or two.
To that end, the analyst called Walmart stock a positive tactical idea on Friday.
Melich expects retail sales growth to shrink significantly to 3.0% this year but is convinced that Walmart Inc is better positioned to navigate the said slowdown, thanks to its bigger footprint in grocery.
Nonetheless, he recommends owning Walmart stock as a trade only. A better long-term investment, the analyst agreed, is Home Depot Inc. On the flip side, Melich is dovish on Target as it’s already had a good run since the start of the year.
It’s gone too far, too fasts. With the stock up above $170, they’ll need to make at least $9.0 maybe even pushing $10, which in a decelerating macro retail tape is a high ask. So, risk-reward for next week or two is favouring WMT.
Target stock is up more than 15% at writing.
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