There was a funny line uttered on a recent episode of Saturday Night Live. It went something like, “The poverty line is the invisible line that separates Target from Wal-Mart.”

Okay, so it may not be funny if you’re a Wal-Mart shopper. If so, no judgment here. I’ve dabbled as a Wal-Mart shopper myself from time to time.

The only reason I bring up this joke is because of the two companies mentioned. Wal-Mart (NYSE: WMT) and Target (NYSE: TGT) were presented as being on equal footing, when in reality they’re not. At least not yet.

With a market capitalization of $201 billion, Wal-Mart is the dominant force in the U.S. retail sector. Its $440 billion in revenue over the last 12 months dwarfs the comparatively microscopic $69 billion Target made last year. Target’s $35 billion market cap isn’t even one-fifth of what Wal-Mart’s is.

And yet, if you read the tea leaves and watch the occasional late-night comedy sketch, there are signs that the gap between the top two retailers in America is closing.

Wal-Mart’s stock has fallen more than 6% in the last two days and is down 3% this year. Target’s stock is up 2% this week and 3.2% this year.

Target’s revenue has grown an average of 2.7% the last two years. Wal-Mart’s revenue has grown an average of 2.1%.

Granted, that’s not a huge discrepancy, especially considering that Target has a lot more room to grow. But Target is making steady progress. Its market cap has grown 18.2% since dipping to $23.5 billion amid the recession in early 2009. During that same time, Wal-Mart’s market cap has risen a more modest 8.7%.

Tomorrow morning will give us a better gauge of whether Target is continuing to gain ground on Wal-Mart. Target reports earnings before the bell on Thursday. Wal-Mart reported earnings yesterday, and while the company’s same-store sales increased they were offset by a decline in gross profit margin.

The perception of Target as a viable higher-class alternative to Wal-Mart is gaining steam. Is the reality catching up with the perception?

Published by Wyatt Investment Research at