Target Vs. Walmart: Which Big-Box Earnings Report Will Be Best?

It has been another tough earnings season for the retail industry, but the upcoming reports from big-box retailers Target (NYSE:TGT) and Walmart (NYSE:WMT) could very well reverse the trend.

Target is set to report its second-quarter earnings before the market opens on Wednesday, while Walmart will release its second-quarter results on Thursday morning. Both of these companies are currently sporting Zacks Rank #2 (Buy) rankings, so anticipation for these reports is understandably high.

But which big-box report will be best? Let’s take a closer look.

Current Estimates

Heading into Target’s report date, our Zacks Consensus Estimates call for earnings of $1.20 per share and revenues of $16.22 billion. These results would represent year-over-year growth rates of -2.53% and 0.32%, respectively.

Walmart will also face tough year-over-year comparisons, with the Zacks Consensus Estimate for earnings of $1.07 per share representing -0.47% growth and our consensus revenue estimate of $122.8 billion representing modest 1.61% growth.

According to additional consensus estimates, which are pulled from our exclusive non-financial metrics file, both Target and Walmart are expected to post relatively flat comparable-store sales, which means that we don’t have many exciting growth metrics to highlight prior to these reports.

Target has been continuing to improve its supply chain, while Walmart has poured money into its e-commerce business. Both brands are still dealing with customers spending less in stores—or less overall customers coming into stores. Nevertheless, these new initiatives have helped the companies stay competitive and could prove to be major performance drivers soon.

While earnings and revenue growth rates for either company won’t be blowing any investors out of the water, Walmart has the slightest edge in this category. Still, investors may well turn their attention to other areas of these reports.

Earnings Whispers

As with all earnings reports, investors will be interested in seeing if Target and Walmart can exceed expectations. One way to gauge whether a company is poised to beat earnings estimates is by looking at the Zacks Earnings ESP.

Zacks Earnings ESP (Expected Surprise Prediction) looks to find earnings surprises by focusing on the most recent analyst revisions. This is done because, generally speaking, if an analyst reevaluates their earnings estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.

With that said, Target’s Earnings ESP currently sits at 0.00%, while Walmart has a positive Earnings ESP of 0.94%. Because the Earnings ESP’s surprise prediction capabilities are most effective with stocks ranked at Zacks Rank #3 (Hold) or better, Walmart’s strong Zacks Rank and positive ESP should give investors more confidence here. Again, we have to give WMT the edge in this category.

Share Price Trends

The final thing investors will want to consider here is recent share price trends, as oftentimes even solid earnings beats are not rewarded with massive gains because a stock has already moved significantly higher and investors feel the beat is priced in. On the flip side, even a slightly disappointing earnings report could send a recently-soaring stock exponentially lower.

With that said, shares of Target closed more than 2.5% lower on Tuesday and now sit nearly 32.5% off their 52-week high. On the other hand, WMT has climbed recently and sits just below its 52-week high.

While this says nothing about how the reports will turn out, it does imply that Target might have more upside potential, which could be appealing to investors looking to make a bigger profit on an earnings play.

Bottom Line

Walmart is going to be the more attractive pick for investors looking for earnings and revenue growth, and its most recent estimate activity should make investors more confident about the potential for an earnings beat. However, if Target can pull off a beat, it might just have more room to soar.

Want more stock market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

Zacks' 10-Minute Stock-Picking Secret

Since 1988, the Zacks system has more than doubled the S&P 500 with an average gain of +25% per year. With compounding, rebalancing, and exclusive of fees, it can turn thousands into millions of dollars.

But here's something even more remarkable: You can master this proven system without going to a single class or seminar. And then you can apply it to your portfolio in as little as 10 minutes a month. Learn the secret >>