Why Target’s Edge Over Walmart Will Last
A scheduled decline in prescription drug prices gives Target a sustainable edge over Walmart.
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There used to be a saying, “What’s good for General Motors is good for America.”
This is actually a misquote. Charles E. Wilson, former president of GM (GM), became the U.S. Secretary of Defense in 1953. At that time, he said, “what was good for our country was good for General Motors, and vice versa.”
Walmart’s Rough Ride
This brings us to Thursday’s earnings report from Walmart (WMT). Some might say, “What’s bad for Walmart is bad for the global economy, and vice versa.” As the world’s largest retailer, Walmart’s earnings are important enough to be considered an economic indicator.
After reporting earnings on Thursday, Walmart shares hit their lowest level since December 2025, despite beating earnings estimates and raising fiscal 2027 guidance for both sales and profits.
The main culprit was slow growth. Walmart’s same store sales grew at just 2.6%, the slowest pace in years. Analysts were looking for 3.8% growth.
The circumstances surrounding Walmart’s stunted growth matter. In this case, what’s bad for Walmart isn’t necessarily bad for the economy or consumers.
Target Gains the Upper Hand
Meanwhile, competitor Target (TGT) managed to increase same store sales by 3.8% in its just-ended quarter. Target shares have gained 57% this year, versus a year-to-date loss of 8% for Walmart.
Target now seems fully recovered from its self-inflicted wounds. The Minneapolis-based retailer managed to alienate folks on both sides of the political aisle in recent years, but now it seems that all is forgiven.
Target’s Edge over Walmart
Why did Target outperform Walmart so dramatically in the just-ended quarter?
Walmart was negatively impacted by lower prescription drug prices. According to the Bureau of Labor Statistics, prescription drug prices fell by 0.8% in July, and 3.1% over the past 12 months. It was the biggest 12-month decline in prescription drug prices since 1963, and a major factor in Walmart’s disappointing 2.6% same store sales growth.
Why wasn’t Target similarly impacted by falling prescription drug prices? While Walmart has its own-brand pharmacy, Target sold its pharmacy operations to CVS Health for $1.9 billion in 2015.
Sustainable Edge?
As long as prescription drug prices continue to fall, Target will have an edge versus Walmart. It appears this will be the case in 2027 and 2028.
The good news for Target, and for older consumers, is that the prices of at least 15 prescription drugs used by Medicare recipients are scheduled to decline in 2027. The list includes popular medications like Ozempic and Wegovy, which could fall in price by 71% for Medicare patients next year.
Prescription drug prices for Medicare patients are likely to continue declining into 2028, when Trulicity, Botox and other medications are scheduled for price reductions.
Bottom Line
Walmart has been a long-term holding, and a solid performer. The stock has more than doubled over the past five years.
That being said, it could take time for Walmart to fully adjust to lower prescription drug prices. Target needs to make no such adjustment, giving it an edge over Walmart for the next few years.
At the time of publication, Ponsi was long TGT and WMT.
