Target vs. Walmart: Which Retail Stock Is the Better Buy After Earnings?

Within roughly 24 hours of each other last week, two of the biggest names in American retail opened their books -- and both gave investors plenty to chew on. Big-box retailer Target Corporation (NYSE: TGT) returned to sales growth after a long slump, while Walmart (NASDAQ: WMT) once again saw robust growth across its business. It was also the first full quarter under new leadership at each company, with Michael Fiddelke at Target and John Furner at Walmart both having stepped into the CEO role on Feb. 1.

Yet investors didn't exactly celebrate.

Both stocks slipped on their reports, a reminder that strong numbers don't always translate into immediate gains -- especially after a run-up. So with both retailers fresh off earnings, which one looks like the better stock to buy today?

Image source: Getty Images.

Target's overdue comeback

For the first time in over a year, Target's business is moving in the right direction. The big-box retailer's first-quarter comparable sales -- a measure of sales at stores and digital channels open at least a year -- rose 5.6%, ending four straight quarters of declines. Total net sales climbed 6.7% to $25.4 billion, and customer traffic grew 4.4%, suggesting more shoppers, not just higher prices, drove the gain.

Encouragingly, Target's strength was broad. Comparable digital sales rose 8.9%, led by more than 27% growth in same-day delivery tied to the company's Target Circle 360 membership. And Target's non-merchandise sales -- which include its Roundel advertising arm, membership fees, and the Target+ online marketplace -- jumped nearly 25%. Those are exactly the higher-margin revenue streams the retailer needs as it works to rebuild profits.

The earnings line looked messier at first glance, but only because of a one-time item. A year earlier, Target had booked gains from legal settlements that inflated its reported profit, which made this quarter's results look like a decline. Strip those gains out, and non-GAAP (adjusted) earnings per share actually rose 32% to $1.71.

Buoyed by the quarter's robust results, management roughly doubled its full-year net sales growth target to around 4%.

Still, one good quarter doesn't undo a year of struggles.

Target management struck a measured tone, telling investors during the company's earnings call that it is keeping "a cautious outlook" given the work ahead and ongoing macroeconomic uncertainty.

Target's recovery may be showing progress, but it's early -- and the stock has already climbed sharply in 2026, pricing in some of the optimism.

Walmart keeps compounding

Meanwhile, Walmart's quarter wasn't a comeback story; it was simply more of the steady growth investors have come to expect. Revenue rose 7.3% to $177.8 billion, and U.S. comparable sales grew 4.1% -- again led by traffic rather than price increases.

But the more telling story may be where that growth is coming from.

Global e-commerce sales grew 26%, and that business is showing improved economics as it scales. Alongside it, Walmart's advertising arm grew 37%, and global membership fee income climbed 17.4%. These higher-margin businesses could gradually lift the company's notoriously thin margins.

On the earnings call, Walmart chief financial officer John David Rainey said investing in low prices is "the single best return" the company can get on its capital right now, a strategy that keeps pulling in market share.

Then there's Sam's Club, the membership warehouse business that Target simply can't match (because, unlike Walmart, Target doesn't have one). Sam's Club U.S. net sales rose 6.1%, its e-commerce sales grew 23%, and membership and other income rose 11% -- giving Walmart a second recurring-revenue engine on top of its core stores.

But Walmart's profit growth was more muted. Operating income rose just 5%, weighed down by a jump in fuel costs that Rainey said cost roughly $175 million in the quarter. And even with revenue growing faster than its own guidance, Walmart left its full-year outlook unchanged rather than raising it -- a cautious move that helped send the stock lower.

So which is the better buy?

Much of it comes down to price. Target is the clear bargain, trading at about 17 times earnings with a 3.6% dividend yield. Walmart, by contrast, carries a steep price-to-earnings ratio near 42, and its dividend yield sits at less than 1%.

Yet even with its stock looking more expensive, Walmart arguably looks like the more attractive bet. Not only is its growth broader, but its profit tailwinds -- given the momentum it's seeing in its higher-margin businesses -- are arguably more substantial. And then there's Walmart's Sam's Club -- a membership wholesale model that Target lacks.

Sure, Target's comeback is encouraging. And its stock trades at a much more conservative valuation. But the company is just one quarter into a turnaround -- and its business is based on a more discretionary product lineup that will likely suffer more than Walmart's during challenging economic times.

For investors willing to stomach the premium (and the volatility that often comes with owning a stock that trades at a high valuation), Walmart's mix of scale and recurring membership revenue may simply be the safer bet. Of course, Target could end up the bigger winner if its momentum sticks. But Walmart still looks like the higher-quality business to own through whatever comes next for retail, and it has a more attractive risk-reward profile overall.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target and Walmart. The Motley Fool has a disclosure policy.