Target vs. Walmart: Which Retail Giant Offers the Better Investment After Earnings?

Within roughly 24 hours of each other last week, two of America's largest retailers opened their books—and both gave investors plenty to digest. Target Corporation(NYSE: TGT) returned to sales growth after a prolonged slump, while Walmart(NASDAQ: WMT) extended its streak of steady expansion. The quarters also marked the first full period under new leadership at each company: Michael Fiddelke took the helm at Target on Feb. 1, and John Furner did the same at Walmart.

Yet Wall Street didn't throw a party. Both stocks slipped following the reports—a reminder that strong numbers don't always translate into immediate gains, especially after a pre-earnings run-up. With consumer spending showing signs of unevenness amid lingering inflationary pressures, the question for investors is which of these retail titans offers the better risk-reward proposition.

Target's quarter was, by most measures, a welcome turnaround. Comparable sales—a key metric measuring revenue from stores and digital channels open at least a year—rose 5.6%, snapping four straight quarters of declines. Total net sales climbed 6.7% to $25.4 billion, and customer traffic grew 4.4%, suggesting the gains came from more shoppers rather than just higher prices. Even more encouraging, the strength was broad: comparable digital sales surged 8.9%, fueled by a 27% jump in same-day delivery tied to its Target Circle 360 membership program. And the company's non-merchandise revenue—spanning its Roundel advertising business, membership fees, and the Target+ online marketplace—soared nearly 25%. Those higher-margin streams are exactly what the retailer needs as it works to rebuild profitability after a tough year.

On the surface, reported earnings looked messy, but that was largely due to a one-time comparison. A year earlier, Target booked gains from legal settlements that inflated its profit; stripping those out, adjusted earnings per share rose 32% to $1.71. Buoyed by the quarter, management roughly doubled its full-year net sales growth forecast to around 4%. Still, one good quarter doesn't erase a year of struggles. On the earnings call, executives struck a measured tone, citing "a cautious outlook" given the work ahead and ongoing macroeconomic uncertainty. Target's recovery is showing signs of life, but it's early—and the stock has already rallied sharply in 2026, pricing in some of that optimism.

Walmart's quarter, by contrast, wasn't a comeback story—it was simply more of the consistent growth investors have come to expect. Revenue rose 7.3% to $177.8 billion, and U.S. comparable sales grew 4.1%, again driven by traffic rather than price hikes. But the more telling story lies in where that growth is originating. Global e-commerce sales jumped 26%, and the economics of that business are improving as it scales. Walmart's advertising arm grew 37%, and global membership fee income climbed 17.4%. These higher-margin businesses could gradually lift the company's famously thin margins. On the earnings call, CFO John David Rainey said investing in low prices is "the single best return" the company can generate—a strategy that keeps pulling in market share.

Then there's Sam's Club, a membership warehouse operation that Target simply can't match. Sam's Club U.S. net sales rose 6.1%, its e-commerce grew 23%, and membership and other income increased 11%, giving Walmart a second recurring-revenue engine atop its core stores. Yet profit growth was more muted: operating income rose just 5%, weighed down by a $175 million increase in fuel costs, Rainey noted. And despite revenue beating its own guidance, Walmart left its full-year outlook unchanged—a surprisingly cautious move that contributed to the stock's post-earnings dip.

So which is the better buy? Much depends on price. Target is the clear bargain, trading at roughly 17 times earnings with a 3.6% dividend yield. Walmart, meanwhile, commands a steep price-to-earnings ratio near 42 and yields less than 1%. Yet even with its stock looking expensive, Walmart arguably offers the more attractive risk-reward profile. Its growth is broader, the profit tailwinds from its high-margin businesses are more substantial, and it operates a membership wholesale model that Target lacks. Target's comeback is encouraging, and its valuation is far more conservative. But the company is just one quarter into a turnaround, and its lineup leans more heavily on discretionary goods—a vulnerability in any economic downturn.

For investors willing to stomach the premium—and the volatility that often comes with a high-valuation stock—Walmart's combination of scale, recurring membership revenue, and diversified growth looks like the safer bet. Target could end up the bigger winner if its momentum sticks, but Walmart appears to be the higher-quality business to own through whatever comes next for retail.

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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.

This article was originally published by The Motley Fool.