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TGT vs. COST: Which Stock Is the Better Value Option?

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Investors with an interest in Retail - Discount Stores stocks have likely encountered both Target (TGT - Free Report) and Costco (COST - Free Report) . But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.

We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.

Right now, Target is sporting a Zacks Rank of #2 (Buy), while Costco has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that TGT is likely seeing its earnings outlook improve to a greater extent. But this is just one factor that value investors are interested in.

Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its current share price levels.

Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.

TGT currently has a forward P/E ratio of 24.44, while COST has a forward P/E of 37.82. We also note that TGT has a PEG ratio of 2.39. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. COST currently has a PEG ratio of 4.31.

Another notable valuation metric for TGT is its P/B ratio of 7.34. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, COST has a P/B of 10.30.

These metrics, and several others, help TGT earn a Value grade of B, while COST has been given a Value grade of C.

TGT sticks out from COST in both our Zacks Rank and Style Scores models, so value investors will likely feel that TGT is the better option right now.


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