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The corporate world is filled with heated rivalry spread across many industries. Like classic sports team rivalries, they capture our imagination as we can’t help but pit two well-matched giants against each other.
As investors, there could be even more at stake. Developments in revenue, margins and capital expenditures can give a company a crucial advantage. Often the other fights back with a punch of their own to keep us on the edge of our seats.
This week we get to see another round of two of corporate America’s most intense battles. These quarterly updates tell us not only who is moving forward, but also the outlook for the general population retail room.
Walmart vs Target
walmart (NYSE: WMT) reports second quarter results ahead of August 16 openinge. Wall Street will be looking for earnings per share (EPS) of $1.62, down 9% from the same period last year.
End of last month management for the world’s largest retailer surprised the market by lowering its second-quarter and full-year forecast due to the impact of rising food prices on consumer spending. The fact that people are shifting their purchases to low-margin groceries is bad news for Walmart because it means they’re spending less on higher-margin items like clothing and electronics.
The flip side is that more shoppers are choosing Walmart to save money in an inflationary environment, helping it gain market share in the grocery store. This, along with low prices for back-to-school supplies, could keep consumer traffic flowing to Walmart for the rest of the summer.
Target (NYSE: TGT) has to do with an inventory surplus that led it to lower its fiscal Q2 guidance as well. As the company rushed to mark down merchandise to make way for back-to-school and fall vacation items, management slashed its operating margin forecast to about 2%. This came on the heels of a major earnings miss in the first quarter, pushing the stock to its lowest level in nearly two years.
Have target stocks upright the market has been in a better mood in recent weeks thanks to signs of easing inflation. The bar is low for August 17the report with analysts expecting earnings per share of $0.72, about one-fifth of what was realized a year ago. Investors will need to be confident that the stock strategy is working and that the turnaround plan is on track.
Better earnings beat potential: Target
DIY store (NYSE: HD) reports pre-market on August 16e. The world’s largest renovation the retailer is expected to bring in earnings per share of $4.94, a potential improvement in earnings of 9% year-over-year.
Since Home Depot operates under a different fiscal calendar, its second quarter results will span the period from May through July and therefore depend largely on home building and remodeling activity.
Based on the recent survey by the National Association of Homebuilders, the remodeling market declined in the second quarter compared to last year, but a reading of 77 suggests that remodeling conditions remained good. In fact, the latest data from the Ministry of Commerce shows that construction materials sales rose 5.6% and 6.4% respectively in May and June.
Investors have already been given clues as to how a couple’s Home Depot report could go construction related companies. Stanley Black & Decker fell short on the lowered earnings benchmark for the second quarter. Masco was a few cents away from Street’s earnings per share, but the flat year-over-year earnings could be interpreted as positive given last year’s strong performance.
For Home Depot to exceed its EPS forecast, it will likely have had to do a good job of attracting professional and DIY customers. Based on the retailer’s eight-quarter profit streak, there’s a good chance this is the case. Healthy trends in both segments and an emerging digital presence point to another constructive report.
Lowe’s companies (NYSE: LOW) reports the day after Home Depot, and the seasonally strong quarter is expected to have delivered earnings per share of $4.59, or 8% year-over-year growth. Lowe’s also has a track record of producing earnings beats and pleasing shareholders with dividends.
After last quarter’s beat, the company announced a 31% increase in its dividend, which became payable earlier this month. However, Lowe’s 2.1% forward return, like its market share, still lags behind Home Depot’s, which is 2.4%.
When it comes to picking sides in a close rivalry, the market tends to lean towards the winner. And since Home Depot generates about 1.5 times more sales than Lowe’s, Lowe’s tends to play second fiddle to this industry.
However, as evidenced by both last year’s and this year’s relative stock performance, Lowe’s is putting up a good fight. Under CEO Marvin Ellison, improved financial discipline, smart investments and a focus on customer service have enabled the company to gain market share. Upgrades to Lowe’s e-commerce and business analytics capabilities will attract more customers and increase profitability.
The Street also sees slightly more upside in the underdog’s share price. Based on analyst activity over the past three months, the consensus price target implies 13% for Lowe’s compared to 10% for Home Depot.
But until the challenger shows that he is gaining significant ground, it might be better to side with the leader on this.
Better earnings beat potential: DIY store
