Back to top

Image: Bigstock

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

Read MoreHide Full Article

Investors looking for stocks in the Retail - Discount Stores sector might want to consider either Target (TGT - Free Report) or 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.

There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. The Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.

Currently, both Target and Costco are holding a Zacks Rank of # 2 (Buy). Investors should feel comfortable knowing that both of these stocks have an improving earnings outlook since the Zacks Rank favors companies that have witnessed positive analyst estimate revisions. However, value investors will care about much more than just this.

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 16.99, while COST has a forward P/E of 44.93. We also note that TGT has a PEG ratio of 1.18. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. COST currently has a PEG ratio of 5.12.

Another notable valuation metric for TGT is its P/B ratio of 7.78. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, COST has a P/B of 13.15.

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

Both TGT and COST are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that TGT is the superior value option right now.


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Target Corporation (TGT) - free report >>

Costco Wholesale Corporation (COST) - free report >>

Published in