Investors interested in stocks from the Retail - Discount Stores sector have probably already heard of Target (TGT) and Costco (COST). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. 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). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that TGT has an improving earnings outlook. But this is just one factor that value investors are interested in.
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.
The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
TGT currently has a forward P/E ratio of 15.72, while COST has a forward P/E of 41.75. We also note that TGT has a PEG ratio of 2.59. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. COST currently has a PEG ratio of 3.89.
Another notable valuation metric for TGT is its P/B ratio of 4.17. 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 12.44.
These metrics, and several others, help TGT earn a Value grade of B, while COST has been given a Value grade of D.
TGT is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that TGT is likely the superior value option right now.
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Target Corporation (TGT): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).