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Buy Wal-Mart over Target, Cowen says

A family shops at the Walmart Supercenter in Springdale, Arkansas.
Rick Wilking | Reuters

Cowen raised its rating for Wal-Mart shares to outperform from market perform, citing the retailer's market strength and growth prospects in coming years.

"A combo of price investments, creative integration of physical + digital & the Jet acquisition position WMT to regain retail dominance," analyst Oliver Chen wrote in a note to clients Monday.

"We're confident WMT's positive US traffic (7 straight quarters) should continue over the next 2 years as WMT makes more aggressive price investments and makes further improvements in the customer experience."

In another move, Chen lowered his rating for Target to market perform from outperform due to increased price competition.

"We move to the sidelines as we lack conviction TGT can reignite comps growth, recent changes in food/pharmacy not resonating with guests & lack of upside drivers. ... In our view, WMT can use its scale to compete on price to regain or maintain market share vs. AMZN (as evidenced by WMT's y/y growth in the month of July below), but TGT cannot compete as easily," he wrote.