Head to Head Review: Target Corporation (TGT) versus Costco Wholesale Corporation (COST)

Target Corporation (NYSE: TGT) and Costco Wholesale Corporation (NASDAQ:COST) are both large-cap retail/wholesale companies, but which is the superior stock? We will contrast the two businesses based on the strength of their dividends, analyst recommendations, profitability, earnings, risk, institutional ownership and valuation.

Earnings and Valuation

This table compares Target Corporation and Costco Wholesale Corporation’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Target Corporation $69.58 billion 0.45 $7.14 billion $4.96 11.52
Costco Wholesale Corporation $129.03 billion 0.53 $5.35 billion $5.77 27.23

Target Corporation has higher revenue, but lower earnings than Costco Wholesale Corporation. Target Corporation is trading at a lower price-to-earnings ratio than Costco Wholesale Corporation, indicating that it is currently the more affordable of the two stocks.

Volatility & Risk

Target Corporation has a beta of 0.62, suggesting that its stock price is 38% less volatile than the S&P 500. Comparatively, Costco Wholesale Corporation has a beta of 0.94, suggesting that its stock price is 6% less volatile than the S&P 500.

Analyst Ratings

This is a summary of recent ratings and recommmendations for Target Corporation and Costco Wholesale Corporation, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Target Corporation 5 13 4 0 1.95
Costco Wholesale Corporation 0 10 16 0 2.62

Target Corporation presently has a consensus price target of $63.67, indicating a potential upside of 11.46%. Costco Wholesale Corporation has a consensus price target of $177.68, indicating a potential upside of 13.11%. Given Costco Wholesale Corporation’s stronger consensus rating and higher possible upside, analysts clearly believe Costco Wholesale Corporation is more favorable than Target Corporation.

Insider & Institutional Ownership

83.2% of Target Corporation shares are owned by institutional investors. Comparatively, 72.3% of Costco Wholesale Corporation shares are owned by institutional investors. 0.2% of Target Corporation shares are owned by company insiders. Comparatively, 0.7% of Costco Wholesale Corporation shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock is poised for long-term growth.

Profitability

This table compares Target Corporation and Costco Wholesale Corporation’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Target Corporation 3.99% 25.06% 7.34%
Costco Wholesale Corporation 2.08% 22.33% 7.16%

Dividends

Target Corporation pays an annual dividend of $2.48 per share and has a dividend yield of 4.3%. Costco Wholesale Corporation pays an annual dividend of $2.00 per share and has a dividend yield of 1.3%. Target Corporation pays out 50.0% of its earnings in the form of a dividend. Costco Wholesale Corporation pays out 34.7% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Target Corporation has increased its dividend for 49 consecutive years and Costco Wholesale Corporation has increased its dividend for 13 consecutive years. Target Corporation is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Summary

Costco Wholesale Corporation beats Target Corporation on 10 of the 17 factors compared between the two stocks.

About Target Corporation

Target Corporation (Target) is a general merchandise retailer selling products through its stores and digital channels. Its general merchandise stores offer an edited food assortment, including perishables, dry grocery, dairy and frozen items. Its digital channels include a range of general merchandise, including a range of items found in its stores, along with an assortment, such as additional sizes and colors sold only online. Its owned brands include Archer Farms, Market Pantry, Sutton & Dodge, Art Class, Merona, Threshold, Ava & Viv, Pillowfort, Room Essentials, Wine Cube, Cat & Jack, Simply Balanced and Wondershop. Its exclusive brands include C9 by Champion, Hand Made Modern, Mossimo, DENIZEN from Levi’s, Nate Berkus for Target, Fieldcrest, Kid Made Modern, Genuine Kids from OshKosh and Liz Lange for Target. As of January 28, 2017, the Company had 1,802 stores across the United States, including 1,535 owned stores, 107 leased stores and 160 owned buildings on leased land.

About Costco Wholesale Corporation

Costco Wholesale Corporation is engaged in the operation of membership warehouses in the United States and Puerto Rico, Canada, the United Kingdom, Mexico, Japan, Australia, Spain, and through its subsidiaries in Taiwan and Korea. As of August 28, 2016, the Company operated 715 warehouses across the world. The Company’s average warehouse space is approximately 144,000 square feet. The Company’s warehouses on average operate on a seven-day, 70-hour week. The Company offers merchandise in various categories, which include foods (including dry foods, packaged foods and groceries); sundries (including snack foods, candy, alcoholic and nonalcoholic beverages, and cleaning supplies); hardlines (including appliances, electronics, health and beauty aids, hardware, and garden and patio); fresh foods (including meat, produce, deli and bakery); softlines (including apparel and small appliances), and other (including gas stations and pharmacy).

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