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TGT or COST: Which Is the Better Value Stock Right Now?

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Investors interested in stocks from the Retail - Discount Stores sector have probably already heard of Target (TGT - Free Report) and Costco (COST - Free Report) . But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.

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 emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.

Target and Costco are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. 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 piece of the puzzle for value investors.

Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether 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 16.39, while COST has a forward P/E of 30.42. We also note that TGT has a PEG ratio of 2.44. 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 2.78.

Another notable valuation metric for TGT is its P/B ratio of 4.16. 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 8.28.

These metrics, and several others, help TGT earn a Value grade of A, 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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