Costco Wholesale Corporation (NASDAQ: COST) and Target Corporation (NYSE:TGT) are both large-cap retail/wholesale companies, but which is the better investment? We will contrast the two businesses based on the strength of their risk, profitability, valuation, analyst recommendations, dividends, earnings and institutional ownership.

Dividends

Costco Wholesale Corporation pays an annual dividend of $2.00 per share and has a dividend yield of 1.2%. Target Corporation pays an annual dividend of $2.48 per share and has a dividend yield of 4.2%. Costco Wholesale Corporation pays out 34.7% of its earnings in the form of a dividend. Target Corporation pays out 50.0% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Costco Wholesale Corporation has raised its dividend for 49 consecutive years and Target Corporation has raised its dividend for 13 consecutive years.

Institutional and Insider Ownership

72.4% of Costco Wholesale Corporation shares are held by institutional investors. Comparatively, 83.2% of Target Corporation shares are held by institutional investors. 0.7% of Costco Wholesale Corporation shares are held by company insiders. Comparatively, 0.2% of Target Corporation shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Earnings & Valuation

This table compares Costco Wholesale Corporation and Target Corporation’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Costco Wholesale Corporation $123.28 billion 0.59 $5.19 billion $5.77 28.61
Target Corporation $69.58 billion 0.46 $7.14 billion $4.96 11.81

Target Corporation has higher revenue, but lower earnings than Costco Wholesale Corporation. Target Corporation is trading at a lower price-to-earnings ratio than Costco Wholesale Corporation, indicating that it is currently the more affordable of the two stocks.

Analyst Recommendations

This is a breakdown of recent recommendations and price targets for Costco Wholesale Corporation and Target Corporation, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Costco Wholesale Corporation 0 8 19 0 2.70
Target Corporation 5 13 5 0 2.00

Costco Wholesale Corporation presently has a consensus target price of $178.83, suggesting a potential upside of 8.33%. Target Corporation has a consensus target price of $62.05, suggesting a potential upside of 5.92%. Given Costco Wholesale Corporation’s stronger consensus rating and higher possible upside, analysts plainly believe Costco Wholesale Corporation is more favorable than Target Corporation.

Risk and Volatility

Costco Wholesale Corporation has a beta of 0.94, indicating that its share price is 6% less volatile than the S&P 500. Comparatively, Target Corporation has a beta of 0.62, indicating that its share price is 38% less volatile than the S&P 500.

Profitability

This table compares Costco Wholesale Corporation and Target Corporation’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Costco Wholesale Corporation 2.06% 20.45% 6.88%
Target Corporation 3.99% 25.06% 7.34%

Summary

Costco Wholesale Corporation beats Target Corporation on 11 of the 17 factors compared between the two stocks.

About Costco Wholesale Corporation

Costco Wholesale Corporation is engaged in the operation of membership warehouses in the United States and Puerto Rico, Canada, the United Kingdom, Mexico, Japan, Australia, Spain, and through its subsidiaries in Taiwan and Korea. As of August 28, 2016, the Company operated 715 warehouses across the world. The Company’s average warehouse space is approximately 144,000 square feet. The Company’s warehouses on average operate on a seven-day, 70-hour week. The Company offers merchandise in various categories, which include foods (including dry foods, packaged foods and groceries); sundries (including snack foods, candy, alcoholic and nonalcoholic beverages, and cleaning supplies); hardlines (including appliances, electronics, health and beauty aids, hardware, and garden and patio); fresh foods (including meat, produce, deli and bakery); softlines (including apparel and small appliances), and other (including gas stations and pharmacy).

About Target Corporation

Target Corporation (Target) is a general merchandise retailer selling products through its stores and digital channels. Its general merchandise stores offer an edited food assortment, including perishables, dry grocery, dairy and frozen items. Its digital channels include a range of general merchandise, including a range of items found in its stores, along with an assortment, such as additional sizes and colors sold only online. Its owned brands include Archer Farms, Market Pantry, Sutton & Dodge, Art Class, Merona, Threshold, Ava & Viv, Pillowfort, Room Essentials, Wine Cube, Cat & Jack, Simply Balanced and Wondershop. Its exclusive brands include C9 by Champion, Hand Made Modern, Mossimo, DENIZEN from Levi’s, Nate Berkus for Target, Fieldcrest, Kid Made Modern, Genuine Kids from OshKosh and Liz Lange for Target. As of January 28, 2017, the Company had 1,802 stores across the United States, including 1,535 owned stores, 107 leased stores and 160 owned buildings on leased land.

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