Target Outpaces Walmart in Analyst's Bull Case

Corey Tarlowe, lead equity analyst at Jefferies, believes that Target (NYSE:TGT) has more upside than Walmart (NASDAQ:WMT), despite a 47% rally in the past year. Tarlowe's bull case for Target is based on three key pillars: a reasonable valuation multiple, a new management team executing on merchandising, and margins sitting at a cyclical low.

Target currently trades at 17x forward P/E, while Walmart trades at 38x. Tarlowe noted that Target's skew towards discretionary products has hurt the company in previous cycles, but now it could serve as a source of operating leverage on increased sales.

Tarlowe pointed to Target's refresh under CEO Michael Fiddelke, with 50% of their assortment being new this year. For back-to-school season, they've added 1,500 new beauty items and 3,000 new food and beverage items. This newness is translating into traffic.

Target's margins are currently at a trough level of around 4%, but historically have averaged around 6%. Tarlowe believes that the company has room to improve its margins with recent investments.