Shares of Walmart (WMT) and Target (TGT) are in the spotlight on Tuesday as Goldman Sachs analyst Kate McShane added the former to her firm's Conviction List while removing the later as she believes the pace of Target's revenue growth should slow into 2022.
REVENUE GROWTH SHOULD SLOW: Goldman Sachs analyst Kate McShane removed Target from the firm's Conviction List while keeping a Buy rating on the shares with a price target of $308, up from $281. The analyst noted that the stock is up 140% since being added to the firm's Conviction List on March 3, 2020, versus the S&P 500 being up 49% over the same time frame. Target has gained share across all categories over the past 18 months, supporting double digit sales growth and "outsized" operating income growth, but the pace of its revenue growth should slow into 2022 to be in-line with historical levels, McShane told investors in a research note.
The analyst, however, thinks Target is well positioned to retain its customer and market share gains earned over the past 18 months. Target also exited its last quarter with an improved inventory position with the delta of inventory growth less sales growth at 17.6% for the second quarter of 2021 vs. a negative delta of 0.5% for the first quarter, which is also a greater improvement versus many peers, she contended.
IN A POSITION TO TAKE SHARE: Goldman Sachs analyst Kate McShane added Walmart to the firm's Conviction List and keeps a Buy rating on the shares after the recent stock underperformance with a price target of $196, up from $184. The company is in a position to take share and "do it more profitably" into 2022, McShane contended. After several years of investment weighing on profitability, Walmart is now in a position to grow EBIT dollars along with continuing its investments due to the greater scale of its e-commerce business today, an improving mix, and growth from higher margin ancillary businesses like advertising, the analyst argues.
McShane believes Walmart was one of the strongest stories at the Goldman Sachs 28th Annual Retail Conference in September given the company's improving ability to grow EBIT dollars, which she thinks will gain investor attention as the company executes over the coming year.
PRICE ACTION: In Tuesday morning trading, shares of Target are fractionally up at $253.94, while Walmart's stock has gained almost 2% to $144.01.
Walmart
+2.3 (+1.62%)
Target
+0.16 (+0.06%)