Why Analysts Are Taking Entirely Different Views on Walmart and Target in an Amazon World

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Amazon.com Inc. (NASDAQ: AMZN) has threatened retailers for years now with lower priced goods at the click of a mouse, but while some retailers have fought back and built out their e-commerce platforms, others have struggled to keep up. From this past week, the earnings reports of Wal-Mart Stores Inc. (NYSE: WMT) and Target Corp. (NYSE: TGT) seem to tell that story.

24/7 Wall St. has included highlights from each of these major retailers’ earnings reports, as well as what analysts are saying about the companies after the fact.

During this past quarter, Walmart posted adjusted diluted earnings per share (EPS) of $1.00 on total revenues of $123.18 billion, excluding membership fees in Sam’s Club. Third-quarter results also compare to consensus estimates for EPS of $0.97 and $121 billion in revenue. In the same period a year ago, Walmart reported EPS of $0.98 on revenues of $118.18 billion.

Third-quarter same-store sales rose 2.7% for the United States, but what really stood out here was that Walmart reported U.S. e-commerce growth of 50% and gross merchandise value totaling 54%. These totals are lower than those reported for the first and second quarter, but Walmart has continued to invest heavily in e-commerce.

As for Target, the retailer said it had $0.91 in EPS on $16.67 billion in revenues. That compared with consensus estimates for EPS of $0.86 and revenue of $16.6 billion. In the same period of last year, the company reported EPS of $1.04 on revenue of $16.44 billion.

Same-store sales rose 0.9% compared with the third quarter of 2016. Digital channel sales rose 24% and contributed 0.8 points to same-store sales growth.

In its outlook for the fourth quarter of 2017, Target said it expects same-store sales growth of flat to up 2% and full-year growth of flat to 1%. For the quarter, the company expects adjusted EPS of $1.05 to $1.25. Analysts had forecast EPS for the fourth quarter at $1.24 on revenues of $21.84 billion.

In a nutshell, Target’s fourth-quarter EPS estimate is mostly lower than the consensus and the highly competitive holiday shopping season the CEO foresees is not conducive to higher profits. To be successful, Target is going to have to compete on price, and that’s not the yellow brick road to profits.

What is worth pointing out in the analyst community is that many are backing Walmart after its report and raising their targets in response, while Target is getting the cold shoulder. Considering the year that each stock has had, this is fairly obvious.

Amazon was recently called the “Death Star” by Liberty Media Chairman John Malone, in terms of its ability to disrupt practically any industry. This has been felt especially by the retail industry over the past few years. While this is a glaring comparison, CNBC’s Jim Kramer believes that this “Death Star” can’t destroy everybody, although it is threatening.

This seemed to be proved by Walmart’s charge this year with its stock up over 44%, compared to other major retailers that are negative in 2017, Target being one of them (down about 20%). Amazon is up over 51% year to date.

Here’s what analysts said about Walmart after the report:

  • Merrill Lynch reiterated a Buy rating and raised its price target to $120 from $100.
  • Morgan Stanley maintained it at Equal Weight and raised its target to $92 from $90.
  • KeyBanc Capital Markets maintained it at Overweight and raised its target to $112 from $100.
  • Oppenheimer reiterated an Outperform rating and raised its target to $100 from $90.
  • Citigroup raised its price target from $80 to $106.
  • Independent Research raised its price target from $86 to $106.
  • JPMorgan raised its price target to $102 from $84.
  • RBC Capital Markets raised its price target to $92 from $83.
  • Stifel raised its price target to $101 from $85.
  • Susquehanna raised its price target to $115 from $99.

Analysts were less positive after Target’s report:

  • Deutsche Bank cut its price target to $53 from $59.
  • Barclays cut its price target to $45 from $50.
  • Citigroup raised its price target from $56 to $58.
  • Stifel maintained a Hold rating and cut its price target to $62 from $65.
  • Susquehanna cut its price target to $54 from $58.
  • Morgan Stanley kept its Underperform rating and lowered its target to $50 from $52.
  • Telsey Advisory Group rates it at Market Perform and cut its target to $58 from $60.
  • Jefferies has a Hold rating and lowered its price target a buck to $59.

Shares of Walmart closed Friday at $97.46, with a consensus analyst price target of $94.01 and a 52-week trading range of $65.28 to $100.13.

Amazon shares were last seen at $1,129.88. The stock has a 52-week range of $736.70 to $1,139.90 and a consensus price target of $1,220.74.

Target traded at $58.13, within a 52-week range of $48.56 to $79.33. The consensus price target is $58.62.