Target Is Winning the Budget-Shopper Fight, Yet Still Trades at Half Walmart's Multiple

The two biggest big-box chains reported their fiscal second quarters within a day of each other in August, and the numbers flipped what investors thought they knew about who wins the budget-conscious shopper. Walmart's U.S. comparable sales grew just 2.6 percent — its smallest quarterly gain in six years and a miss against the ~3.8 percent analysts had penciled in. Target, the retailer a lot of people had already written off, posted the opposite: comparable sales up 3.8 percent, driven by a 3.6 percent jump in shopper traffic, its second straight quarter of growth.

The reason the pairing matters is that the battleground itself has moved from price tags to the grocery cart, and 2026 is proving to be the year the cart came to the front of the store. Mass merchants such as Walmart and Target have drawn level with supermarkets as shoppers' primary source for groceries — 37 percent of consumers now name a mass retailer as where they spend the most on groceries, about the same share that names a traditional grocery banner. Industry traffic data shows the growth in 2026 is coming from lower- and middle-income shoppers visiting more often and taking shorter trips. That is exactly the customer both chains are fighting for, and the quarter shows the fight is no longer Walmart's to lose.

Why Walmart is now the one slowing

Walmart's slowdown is not a broad weakness; it is concentrated in the customer it was built to serve. Average ticket (spending per transaction) rose just 1.1 percent, down from a 3.1 percent gain a year earlier, and transactions rose 1.5 percent — a deceleration from the prior quarter's 3 percent. Higher gas prices and pause-sensitive SNAP benefits squeeze the lower-income households that are Walmart's core, while the company says its market-share gains are now coming disproportionately from households earning $100,000 or more.

The offset is that Walmart is no longer a store-comp story. Its U.S. e-commerce grew 24 percent and now runs about 23 percent of U.S. sales, advertising revenue rose 43 percent, and total revenue still grew 5.9 percent. Operating income rose 28.8 percent, though that includes a 750-basis-point benefit from one-time tariff refunds; underlying growth landed at the top of the 7-10 percent range. Management raised its full-year sales and profit outlook, yet the stock still fell on the report — the market read the weak store comp and cautious consumer as the leading signal.

The stock market continues to pay Walmart like the winner regardless. It trades at roughly 38 times trailing earnings, an extreme multiple for a business doing mid-single-digit sales growth, even at a mature retailer with an advertising and fulfillment engine behind it.

Target's turnaround — and the asterisks

Target's numbers, by contrast, show the merchandising overhaul under new CEO Michael Fiddelke (who took the helm in February) is landing with the budget shopper. Grocery, food and beverage sales rose 7.2 percent to just under $6 billion, double-digit growth in "Fun 101" discretionary categories, and digital comparable sales were up 8.7 percent, led by more than 25 percent growth in same-day delivery. Gross margin is up, and management now guides to an operating margin that should beat the prior year's 4.6 percent even before a roughly 90-basis-point tariff-refund benefit.

Two things stop this from being a clean victory lap. The first is earnings quality: reported earnings per share of $4.11 more than doubled year over year, but that included $1.65 of one-time tariff refund benefits; excluding them, EPS still grew a solid 20 percent. The second is the structural tension in the strategy itself — the growth is being powered by grocery, which is a low-margin business, so the whole thesis rests on whether added traffic converts into lasting margin rather than just more lower-margin baskets. Target's operating margin sits around 4.5 percent, well below Walmart's, which is exactly why its turnaround is still judged on proof rather than promise.

A discount that has mostly been spent

Here is the crux. Target's stock has already rallied roughly 60 percent this year to about $156, more than doubling off its 52-week low near $83. Analysts note the recovery is well advanced and that "another sales beat may not be enough" to move the shares — the market has begun pricing in the early turnaround.

Yet even after that run, Target still trades at only about 16 times trailing earnings (around 15 times the midpoint of the raised $9.90-$10.90 guidance), with a roughly 2.9 percent dividend yield. Against Walmart's 38 times, the market is still pricing a large, structural discount — one justified only if Target's grocery-led growth cannot translate into margin. The fallout from the rally is that the fallen-stock bargain is largely gone; what remains is a reasonable multiple that still has room only if two more quarters of comparable-sales growth arrive with ex-refund margin gains on top.

That is the test to watch. If Target keeps posting accelerating comps while operating margin — stripped of one-time tariff money — rises above the prior year's 4.6 percent, the stock still looks under-priced relative to its own growth and to Walmart. If the grocery-heavy mix caps margin instead, the 60 percent run will have front-run the evidence, and the discount to Walmart will turn out to be deserved rather than a bargain.