Retail Analyst Breaks Down Target's Report, Makes The Case For Costco And Walmart Stock

Retail companies dominated Tuesday morning's headlines with Target Corporation TGT reporting fourth-quarter results while Costco Wholesale Corporation COST continues to be mentioned as a beneficiary of people stocking up on supplies amid coronavirus uncertainties.

What To Know

Shares of Target were lower ahead of Tuesday's market open as the company reported a slight beat on the bottom line, marking the fifth straight quarter of outperformance, CFRA analyst Garrett Nelson said on CNBC's "Squawk Box." But the stock didn't move higher as the earnings report was "par for the course" and 2020 guidance came in "right in line" with expectations.

Nelson said he is "more cautious" on Hold-rated Target compared to Buy-rated Costco, especially after Target's stock outpaced its earnings growth over the past few years. On the other hand, Costco and Walmart Inc WMT have better leverage to consumer staples.

Why It's Important

Costco's stock gained 10% on Monday and Walmart's stock was up around 8% as anecdotal accounts of supply shortages plaguing Costco stores across the country surfaced. This is more of a "short-term boost" story and will add a lift to near-term earnings.

The remainder of 2020 could prove to be a time for investors to show "a little more caution" and consumer staple-names should fare better compared to Target which is more of a consumer discretionary play, he said.

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