Image Source: Mike Mozart, Flickr
 

With a bulk of the Q2 results from the retail sector looming this week, Target (TGT - Free Report) and Walmart (WMT - Free Report) will be in focus regarding the major supermarket chains.

Sparking an interesting conversation, both of these prominent retail stocks trade near $100 a share but are on different sides of the spectrum regarding this range, with WMT at a 52-week high while TGT is more than 35% below its one-year peak.

This certainly makes it a worthy topic of which retail stock may be the better investment as their Q2 reports approach, with the premise of whether investors should buy Walmart stock for higher highs or buy the drop in Target shares for a rebound.

Target & Walmart Q2 Expectations
 

Set to report Q2 results on Wednesday, August 20, Zacks' projections call for Target’s quarterly sales to be down 2% to $24.91 billion compared to $25.45 billion a year ago. On the bottom line, Target’s Q2 earnings are expected to fall roughly 20% to $2.06 per share from EPS of $2.57 in the prior year quarter.

As for Walmart, which will be reporting on Thursday, August 21, its Q2 sales are thought to have risen more than 3% to $175.51 billion versus $169.34 billion in the prior period. Even better, Walmart’s Q2 EPS is expected to be up 9% to $0.73 from earnings of $0.67 a share in the comparative quarter. 

TGT & WMT Stock Performance Overview
 

Explaining the divergence in their stock performance (and Q2 expectations), despite facing tariff headwinds of its own, especially as it relates to electronics and toys that are sourced from China, Walmart’s core business is thriving in regard to grocery and essential home items, which make up nearly 60% of its sales. Thanks to its pricing power and omnichannel strategy of successfully blending physical stores and digital platforms, Walmart’s business model has aligned with what the current retail environment demands for consumer needs.

In contrast, Target has been more exposed to discretionary categories like apparel and non-essential home goods that are struggling amid higher tariffs and interest rate pressures. Target’s digital presence has also lagged in comparison to Walmart, hurting its ability to scale advertising and third-party marketplace revenue. Furthermore, analysts expect Target to raise its prices more aggressively than Walmart to offset tariff costs.

Regarding their stock performance this year, Walmart’s gains of +11% have topped the broader market and e-commerce leader Amazon’s (AMZN - Free Report)  +5% while Target shares are down a dismal 22%.  
 

Image Source: Zacks Investment Research

TGT & WMT Valuation Comparison
 

Despite Walmart’s competitive advantage in the current economic cycle, Target’s valuation is far more appealing. To that point, both trade under the preferred level of less than 2X sales, but Target stock trades at 13.7X forward earnings, offering a steep discount to the benchmark S&P 500’s 24.6X and Walmart’s 38.4X.

It’s also noteworthy that Target stock is trading noticeably below its decade-long high of 30.4X forward earnings and offers a nice discount to its median of 15.7X during this period. Walmart, on the other hand, is near its decade peaks in this regard.
 

Image Source: Zacks Investment Research

TGT & WMT Dividend Comparison
 

While both of these prestigious retail stocks are considered Dividend Kings, raising their dividends for at least 50 consecutive years, Target also stands out in terms of the value it offers to shareholders with a very generous 4.43% annual dividend yield that impressively tops Walmart’s 0.94% and the S&P 500’s 1.15% average.
 

Image Source: Zacks Investment Research

Conclusion & Final Thoughts
 

Long-term investors may certainly be more compelled by Target’s stock at the moment, with TGT landing a Zacks Rank #3 (Hold). Still, Walmart’s near-term outlook is more compelling and has started to justify paying a premium for its stock, with WMT sporting a Zacks Rank #2 (Buy).

Ultimately, the decision of which retail stock may be the better investment in the portfolio comes down to whether investors want to bet on Target’s value for the long-term or Walmart’s growth and ability to offer defensive safety at the moment.

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