Why Target, Walmart and Costco are outperforming Amazon's share price

2019 has seen Target, Walmart and Costco’s share prices outpace Amazon. Not only that but Amazon's share price is underperforming the S&P 500.

Amazon’s share price is up 14% this year, well behind the S&P 500’s 26% gains. Why is the stock underperforming? Perhaps it's a simple pullback after years of hyper growth. Throw in the ecommerce giant curtailing its aggressive growth plans and it looks like investors and traders are less willing to add the stock to their basket.

Then there are traditional retailers that have ended years of denial about the effects of ecommerce. The likes of Target and Walmart have all seen share price gains by investing in their online offerings.

Nomura Instinet analyst Michael Baker sums up the shift in outlook:

“Retailers have gone from being in denial about the potential threat of e-commerce to accepting that e-commerce is a real threat and investing to take advantage of the omnichannel asset.’

“Retailers have gone from being in denial about the potential threat of e-commerce to accepting that e-commerce is a real threat and investing to take advantage of the omnichannel asset.” - Nomura Instinet analyst Michael Baker

So have the big box retailers really found a gap in Amazon's strategy, and are there more share price gains to come?

Amazon share price

While Amazon's share price is up, in the last 6 months, the stock has fallen 6.7% on profit concerns. Third quarter earnings came in at $4.23 billion, down from the $5.22 billion seen in the previous quarter. This was also the second quarter in a row that Amazon's earnings decreased, with another drop forecast next quarter.

Amazon is now trading beneath its 20 and 50 day moving averages. AWS and streaming services might be money makers for Amazon, but the company needs to focus on its retail offering if it’s to fend off competition from Target and Walmart. That means investment in its one-day Prime delivery programme and online grocery offering. 

Still, Amazon's share price carries an average 2,160 target. Hitting this would represent a 22.8% gain on the current share price.

Target share price

For many Wall Street analysts, Target is a dream come true. In-store investment and a growing online presence has seen revenue increase. Not only that, but Target's share price is up a hefty 91% this year.

To compete with Amazon, Target has spent $7 billion on its digital proposition and aims to refurbish more than 1,000 stores by the end of 2020.

The effort appears to have paid off, with the company having lifted its full year price target twice in 2019. Not only that but Wall Street has taken notice with Target scooping the award for Yahoo Finance Company of the Year for 2019.

Commenting on Target’s phenomenal performance, Deutsche Bank’s veteran retail analyst Paul Trussell said:

“Margins have been phenomenal this year. Even when you write all of these initiatives down, that would rarely translate into double-digit growth in operating income, let alone the 20%-plus we saw in the third quarter. So that is the biggest positive surprise." 

Analysts have pegged a 12-month price target of $137.00 - a 7.9% upside on the current share price.

Walmart share price

Walmart’s share price is up over 29% this year, having clawed back losses sustained in August. Over the past 5 years, the gains are more impressive with the stock up 42%.

Walmart is already stealing market share from Amazon. In Q3 results, Walmart saw a 41% growth in US ecommerce sales. Amazon, on the other hand, delivered underwhelming Q3 results that missed many analysts’ expectations. 

Like Target, Walmart has invested in improving its online presence, particularly to handle large shopping periods, like Cyber Monday and Christmas. Traditionally, this is when Amazon gobbles up market share. But that could change this year, with Amazon’s Net Promoter Score dropping in six out of nine categories. Throw in Amazon issuing poor revenue guidance for the upcoming holiday season, and it looks like Walmart could be in for a very merry Christmas. 

Analysts tracking Walmart on Yahoo Finance have a $130.24 average price target - an 8% gain on the current price.

Costco share price

Costco’s share price is up 44% so far in 2019 in what has been a solid year for the retailer. In recent Q1 earnings, the company beat analyst earnings expectations, delivering $1.90 a share from $36.2 billion net sales. Wall Street had been expecting $1.71 a share from $36.4 billion. 

Unlike Walmart and Target, Costco has resisted making the same level of investment in its online capabilities. Thanksgiving saw the site slow as customers struggled to grab deals online. While Costco described this as "unfortunate", the company doesn't look like it's about to follow Walmart and Target any time soon.

“As it relates to buy online and pickup in-store, we continue to look at what others do and continue to scratch our head. We’re not at a point that we’re planning to do anything with that," said Chief Financial Officer Richard Galanti during the earnings call.

Among the analysts tracking Costco, the stock has an average $312.50 price target. Hitting this would represent a 6.3% upside.