Is Now the Time to Buy Target and Walmart Stocks?
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While it’s difficult to predict stocks amidst the uncertainly coronavirus crisis, Walmart and Target may be good buys, according to Goldman Sachs.
The financial services company says the big-box chains seem well-positioned to withstand the crisis both in the short- and long-term — even given the many unknowns surrounding the situation.
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For now, Target and Walmart have seen large gains in the grocery category as panicked shoppers load up on household products. In a report last week, Target announced that comps have been up more than 20% so far in March. Although apparel and accessories sales are down by 20%, the essentials as well as food and beverage categories have seen sales jump upwards of 50%. Walmart, meanwhile, is hiring an extra 150,000 workers to keep up with increased demand, as well as implementing pay raises for hourly employees at its e-commerce warehouses.
But if and when the grocery wave subsides, Goldman predicts that the retailers could benefit from the temporary closures of other, nonessential retailers and pick up sales in categories such as apparel, beauty and home.
“While discretionary spending is down and will likely remain pressured as the macro environment is likely to remain challenged, we expect Target and Walmart to gain some share for those still shopping these categories,” Goldman forecasted.
In the long-term, Goldman says there will likely be a deceleration in growth of groceries and other essentials but noted that customers will still have to restock some items. Additionally, amid economic pressures, consumers are also likely to eat out less, the firm forecasts.
Further, while both retailers could face tough comps during the next fiscal year as the global health crisis presumably abates, Goldman predicts customers may continue shopping habits established amid virus concerns: “given the strong traffic that was driven to both the stores and e-commerce sites for these two retailers when people were concerned about the virus, that there was likely new customer acquisition and/or existing customers who gave a larger share of wallet, which could continue.”
Goldman forecasts Walmart earnings will accelerate in 2021 on e-commerce growth in grocery and other initiatives. On a 12-month basis, Walmart shares are estimated by the firm to climb to $121, implying a 10% upside; currently, shares are trading for $112.
Meanwhile, Goldman believes Target’s brand portfolio, including private labels as well as partnerships with Disney and Levi’s, will be of benefit going forward. The firm’s 12-month target for Target is $105; shares are currently trading for $97.
While Target and Walmart doors are currently open, many fashion and footwear retailers have shut all U.S. locations amidst the coronavirus crisis. As of Monday morning, the coronavirus has sickened more than 143,000 people and killed over 2,500 in the U.S.
Although discretionary spending is down amidst the crisis, President Donald Trump on Friday signed a massive stimulus bill aimed at boosting the economy. The $2 trillion package — recognized as the largest fiscal stimulus package in modern American history — will send direct payments and grant unemployment benefits to millions of people, as well as provide billions in financial aid to states and companies.
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