Target, Walmart Take Diverging Paths After Earnings: PreMarket Prep Breaks Down Retail Stock Trades

There are some disadvantages to reporting earnings after one of your peers in the sector. The major one is the company reporting first can set an extremely high bar for the second to clear.

That is certainly the case with Target Corporation TGT, which reported the day after Walmart Inc WMT had a blowout third-quarter report. The corresponding price action in the issue makes it the PreMarket Prep Stock of the Day.

Target, Walmart In Harmony Until Today: Over the years, Target and Walmart have moved in unison along with the S&P 500 index.

Although Target made its all-time high in November 2021 ($268.98), it peaked near, that level in April ($254.87), when Walmart made its all-time high ($160.77).

Since June, the issues have taken two opposing paths. Target ended June at $141.22 and is now up 9% from that level at $154.

On the other hand, Walmart ended June at $121.58, and at $148.50 it has increased 22% since then. Of course, most of that divergence has taken place since Tuesday.

Street Leans The Wrong Way On Retailers: Even before Target tacked on $6 on Tuesday off the better-than-expected Walmart third-quarter report, the issue had been on fire. Only six days ago, the issue closed at $152.99, and it ended Monday’s session at $173.26 for a short-term gain of $20.27 or 13.2%.

Walmart was in the red in the six days prior to its report, falling by $4.40 or 3% ($142.79-$138.39).

Target's Q3 Report: Before the opening Wednesday, Target reported quarterly earnings of $1.54 per share, which missed the analyst consensus estimate of $2.13 by 27.7%.

Also, the company reported quarterly sales of $26.52 billion, which beat the analyst consensus estimate of $26.38 billion by 0.52%.

PreMarket Prep's Take: When the issue was being covered on the show it was already deep in the red by over $25 at the $153 area.

“Nothing said in the report was good, but they will come in and buy the dip," co-host Dennis Dick said of Target.

“I would not be surprised if it was in the $152 area. Money managers who are scrambling around and fear they missed a major bottom in the market will come in and buy Target.”

The author of the article concurred with the “buy the dip” thesis, yet identified a buy zone a bit lower than Dick’s, but not by much.

Investors were alerted to a gap fill at $151 from Oct. 17. In addition, the close on the day prior, $149.25, may attract buyers as well.

TGT Price Action: After a much lower open, ($149.89 vs. $178.98), the issue immediately bottomed at $148.75 and sharply reversed course. It has continued to make new highs for the session, with the current one being $158.31 as of 12:15 p.m. EST.

The stock ultimately lost 13.06% Wednesday, closing at $155.47.

The discussion on Target from Wednesday’s show can be found here:

Photo courtesy of Target.