Target Trades at a Fraction of Walmart's Valuation. Is the Discount Deserved?

Walmart (NASDAQ: WMT) and Target (NYSE: TGT) sell overlapping goods to overlapping shoppers, but investors price their stocks very differently.

The retail giant from Arkansas has a $992 billion market cap, 13 times Target's. Walmart trades at 45.2 times trailing earnings, Target at 17.1. On price to free cash flow, the gap is wider: 73.3 for Walmart, 16.8 for Target. Both comparisons need a caveat, because both retailers received large tariff refunds last quarter.

The refund asterisk

Target booked a $994 million tariff refund in the Q2 2026 quarter, worth $1.65 of its $4.11 in EPS. Without that one-time benefit, earnings grew about 20% rather than 100%, and the P/E on full-year guidance is nearer 18.8.

Walmart got roughly $2.9 billion in refunds of its own. The company booked the tariff windfall but is plowing much of it back into lower prices, expanding its rollback program from 7,200 to 11,000 items. Management guided Q3 2027's operating income growth to just 2%-4%. At the midpoint of Walmart's EPS guidance, which still includes some refund benefit, the stock trades near 44 times earnings.

Target: real progress, unevenly spread

Target's adjusted 20% bottom-line growth is real, but it's also a bit of a gimme, and the analysis deserves another footnote.

Last year's second quarter was ugly, full of markdowns and costs from canceled vendor orders. Year-over-year comparisons against that modest base were always going to be easy. Still, Target's traffic rose 3.6% in Q2 2026, and traffic from AI platforms like Alphabet's Google Gemini and OpenAI's ChatGPT is growing at 3.5 times the industry rate (from a tiny base, to be fair). Target's agentic shopping experiment is off to a solid start.

Target is trying to reclaim its classic position as the place for a little extra style on a limited budget. It's not a smooth success, though. Home and apparel, in the words of the chief merchandising officer, are "not where it needs to be."

Walmart: the compounding machine

Walmart, meanwhile, is acting like a tech company that just happens to sell bananas, too. On the most recent earnings call, CFO John David Rainey said almost half of last quarter's profit growth came from membership, advertising, and marketplace.

And the tech effort is fueling real results. Users of the Sparky AI shopping assistant are up 70% and spend 40% more per order, 3,100 U.S. stores receive some automated freight, and automated facilities handle more than half of Walmart's e-commerce fulfillment volume.

What the numbers imply

The plain valuation multiples feel misleading, even after removing the tariff refunds. Analysts see about the same long-term earnings growth for both, 11.1% a year for Walmart and 11.6% for Target. When you include earnings growth estimates in the valuation math, Walmart's price-to-earnings-to-growth ratio (PEG) is 3.5; Target's is 1.5.

Walmart's CFO himself said, "Lapping 19% EPS growth next year will be a challenge." If you buy Walmart here, you gear up for a ride where most things need to keep going right for a long time, with a slim 0.8% dividend yield in the saddlebag.

Target's discount is mostly deserved. Its home and apparel turnaround will be a multi-year effort. Still, even against an easy comparison, underlying growth near 20% argues the valuation gap is wider than it needs to be.

In other words, Target might deserve a little more market respect these days.

Anders Bylund has positions in Walmart. The Motley Fool has positions in and recommends Target and Walmart. The Motley Fool has a disclosure policy.