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

Zacks Equity Research

Investors interested in Retail - Discount Stores stocks are likely familiar with 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.

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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.

Target and Costco are both sporting a Zacks Rank of # 2 (Buy) right now. 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. But this is only part of the picture 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.

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 20.20, while COST has a forward P/E of 35.08. We also note that TGT has a PEG ratio of 2.85. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. COST currently has a PEG ratio of 4.13.

Another notable valuation metric for TGT is its P/B ratio of 5.65. 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 8.47.

These are just a few of the metrics contributing to TGT's Value grade of A and COST's 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.


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