Target (TGT) vs Costco (COST): 2 of the Most Interesting Retail Stocks

Inside this article you will find all the most important key data you need to know about the companies covered by this analysis. The main key data answers the following questions:

  • Is the company’s business growing by increasing the main key business data (Revenue, EBITDA, Net Income)? Are the main business margins (EBITDA Margin and Net Margin) improving making the company more efficient?
  • Are analysts expecting earnings growth in the next quarter and next year?
  • Does the company pay a dividend? if so, how much is the yield? Is it increasing in recent years?

The analysis is completed with a simulation of how a portfolio composed of the companies considered here would have performed in terms of return and risk, also with respect to the market index chosen as benchmark.

*The Year-To-Date performances within this article do not refer to the beginning of 2021 given the limited number of trading sessions (only 3) that have occurred since the beginning of 2021. Therefore it refers to the period from the beginning 2020.


Selected Companies

The companies covered in this analysis are as follows:

Target Corporation operates large-format general merchandise and food discount stores in the United States, which include Target and SuperTarget stores. They offer both everyday essentials and fashionable, differentiated merchandise at exceptional prices.

Costco Wholesale Corporation operates an international chain of membership warehouses, mainly under the `Costco Wholesale` name, that carry quality, brand name merchandise at substantially lower prices than are typically found at conventional wholesale or retail sources. 


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This analysis is divided into 6 sections:

  • General Info
  • Performance and Risk
  • Key Business Data – Trailing 12 Months
  • Key Business Data – Last Quarter
  • Portfolio Simulation
  • Overall Score

General Info

This is an introductory section that shows you general information about the companies covered in this analysis. Based on these data you can find out the size of the company, the amount of the dividend paid (and how much has been increased in recent years) and the so-called valuation multiples, or how much the market currently values the company based on 3 key business data.

*Data in Millions of USD

The metrics in the image above are as follows:

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  • Market Cap ($M): Market Capitalization (expressed in millions of dollars)
  • Annual Dividend ($): Annual dividend (if the company releases it, expressed in dollars/share)
  • Annual Dividend Yield: Annual dividend (if the company releases it, expressed as a percentage of the stock price)
  • 5 Yr Dividend Growth: Growth rate of the dividend over the last 5 years
  • Valuation Multiples: Valuation of the company based on the Revenue / EBITDA / Net Income generated in the last 4 quarters (Trailing 12-Months).

*if N/A is present in reference to dividends it means that the company does not pay it, while if N/A is present in reference to valuation multiples it means that the company has a negative EBITDA or Net Income and therefore it is not possible to calculate the valuation multiple


Performance and Risk

In this section you will find information about the stock price of the companies covered in this analysis, useful for identifying the trend and also the risk associated with each one. The information presented here is useful to know if the stock price of the company is growing in recent months, if it is currently in a positive trend in the short, medium and long term and to know 3 important statistics on company risk; the maximum percentage loss obtained in a single trading session, the maximum loss obtained over a longer period of time and the level of volatility / risk of the company with respect to the chosen market index (Beta).

In the image above you can find the following metrics:

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  • 3-Month, 1-Year and Year-To-Date performance
  • Presence of a short / medium / long term positive (or negative) trend based on whether the current price is above (or below) the simple moving average at 20/50/200 days
  • Beta (60-Month): Indicates the level of volatility / risk of the company with respect to the S&P 500 index. A value of 1 indicates market-like risk, greater than 1 greater risk and less than 1 less risk.
  • The maximum loss obtained in a single trading session by the company during the period considered and the maximum loss obtained during the entire period considered. These 2 information are more useful if you look inside the section dedicated to the individual company in order to compare them with those of the market index chosen as a benchmark in order to understand how risky the company is compared to the benchmark.

*if N/A is present in reference to the performance over a certain period (eg 1 year) it means that the company has been listed on the stock exchange for a shorter period than the period being calculated


Key Business Data

– Trailing 12-Months –

This section focuses on the key business data reported in recent years by the companies covered in this analysis. In particular, this section aims to understand if companies in recent years have managed to increase their business (by increasing revenues) and if they have managed to transform part of the revenues into profit, also called business margin. Furthermore, it is useful to identify whether the companies have been able to increase the profits and the margins year after year, a sign of an improvement in the business.

Finally, this section shows the analysts’ expectations on the earnings growth for the next year, so as to understand if they are expecting a growth or a decrease in the business. The key business data treated in this section are Revenue, EBITDA and Net Income, while the 2 business margins shown are EBITDA Margin and Net Margin.

*Data in Millions of USD

In the image above you can find the following metrics:

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  • Revenue, EBITDA and Net Income: Revenue are the sum of the products and services sold, EBITDA is a widely used metric because it is an approximation of cash flow and focuses only on the operating performance without considering the financial and tax costs which are instead considered in the Net Income, which measures the final profit of the company after subtracting all types of costs from revenue. These 3 metrics are calculated TTM, i.e. as the sum of the last 4 quarters, in order to have the data updated to the most recent quarter. Next Year EPS Growth represents the growth (or decrease) rate of earnings-per-share (EPS) forecast by analysts for the next year.
  • EBITDA Margin and Net Margin: Represent 2 important business margins of the company and are calculated as a percentage of revenues
  • 3 Yrs Growth: For each of the metrics just mentioned there is the growth (or decrease) rate of the last 3 years. It is very important to understand if the business is growing, especially in terms of margins.

To conclude this subsection, for each of the companies covered in this article in the image below you will find a graph showing the trend in revenue (and net income) over the last 5 years. These graphs are useful to immediately understand if the revenues and the net income are in a positive or negative trend in the last years.


Key Business Data

– Last Quarter –

In this section there are some key business data present in the previous one, with the difference that in this section they refer to a shorter period of time, more precisely to the last quarter. The main purpose of this section is to show the company’s results reported in the latest quarterly report released to understand if it has grown compared to the same quarter last year. Additionally, analysts’ earnings estimates for the next quarter are shown to see if they expect an improvement over last year.

*Data in Millions of USD

In the image above you find the following metrics:

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  • Revenue, Net Income and Net Margin: 3 key business data already explained in the previous section, with the difference that in this section they refer to the last quarter concluded by the company.
  • Yr-over-Yr Growth: Indicates the growth (or decrease) rate of each of the 3 previously mentioned items compared to the same quarter of last year, useful to check if the company has grown.
  • Next Qtr. EPS Growth: Represents the growth (or decrease) rate of earnings-per-share (EPS) forecast by analysts for the next quarter compared to the same 12 months earlier. This figure is useful to understand if analysts expect that the company will grow in the next quarter.

Portfolio Simulation

This section simulates (based on past real prices) the performance of a hypothetical portfolio made up of the companies covered by this analysis, where they all occupy the same weight within it. The purpose of this simulation is to understand how the portfolio would have behaved in terms of return and risk, even compared to a benchmark.

As you can see from the image above, the performance as a percentage of the portfolio with respect to that of the market index chosen as benchmark for this analysis is specified, with the possibility of seeing the relative graph which simulates an initial capital of $ 10,000 invested in the portfolio compared to the same amount invested in the market index.

In addition, there are 2 subsections: In “Performance” the performance of the portfolio and that of the benchmark at 1 month, 3 months and 1 year are compared, while in the “Risk” section a comparison is made between 3 important metrics such as the Max Daily Loss, the Max DrawDown and the correlation of the portfolio compared to the benchmark, in order to understand if the portfolio is more risky than the market index.

Finally, the “Year-To-Date” section on the right simply shows the performance from the beginning of the year of the portfolio compared to that of the benchmark with the relative graph.


Overall Score

In this section you will find a score (from 0% to 100%) assigned to each company based on some key indicators divided into the following 5 categories: Business Data, Business Margins, Performance, Risk and Dividend.

In summary, to reach the maximum score (100%) the company must show a growing business in recent years and estimates of continued growth in the future, outperform the market index chosen as benchmark in the short and medium-long term while maintaining a lower risk and pay a dividend that must be growing over the past 5 years.

For each company, in addition to the overall score, you will find a score in each of the 5 areas previously mentioned, in order to identify the areas in which the company is doing better (highest score). In general, a score above 60% indicates a good company. Click on learn more to find out how the score is calculated.

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The “Overall Score” is a summary indicator (ranging from 0% to 100%) assigned to each company and depends on some key indicators divided into 5 areas; Business Data, Business Margins, Performance, Risk and Dividend. The maximum achievable score is 20 points out of 20 available (100%) and to achieve it a company must show a business that has grown in recent years and estimates of continued growth in the future (Business Data and Margins Data areas), outperform in the short and medium- long term the market index chosen as the benchmark (Performance area) while maintaining a lower risk (Risk area) and paying a dividend that must have increased over the last 5 years (Dividend area).

Below you will find the details of how the 20 points available in total for each of the 5 areas are assigned:

Business Data: The maximum achievable score is 11 and is divided as follows: 1 point (3 in total) for each of the following items that have grown over the last 3 years: Revenue, EBITDA, Net Income; 1 point (2 in total) for each of the following items that grew in the last quarter compared to the previous year: Revenue and Net Income; 1 point if the company produces a profit at the end of the year and not a loss (Net Income> 0); 1 point if the company produced a profit in the last quarter; 1 point if analysts estimate earnings growth in the next quarter compared to the same one in the previous year; 3 points if analysts estimate earnings growth next year

Business Margins: The maximum achievable score is 3 and is divided as follows: 1 point if the company shows a growing EBITDA Margin in the last 3 years; 1 point if the company shows a growing Net Margin in the last 3 years; 1 point if the company shows an improved Net Margin in the last quarter compared to the same of the previous year

Performance: The maximum achievable score is 4 and is divided as follows: 1 point (4 in total) for each of the following 4 time periods in which the company has outperformed the market index chosen as benchmark: last month, last 3 months, last year and year to date.

Risk: The maximum achievable score is 1 and is divided as follows: 0.5 points if the company shows a maximum daily loss lower than the market index chosen as benchmark; 0.5 points if the company shows a maximum loss in the whole period considered (max drawdown) lower than the market index chosen as benchmark.

Dividend: The maximum achievable score is 1 and is divided as follows: 0.5 points if the company pays a dividend; 0.5 points if the dividend has been growing in the last 5 years.


This article only shows the comparison screens between all the companies covered and not the sections relating to the individual companies, useful for having a summary, in a single page, of all the key data of the company and the comparison with respect to the benchmark.

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Sources & additional info

*all data is current as of the day this article was written
*data on dividends and analyst estimates for the next quarter/year by barchart.com


Disclaimer

The information in this article is for informational purposes only and does not constitute investment advice. The past performance of stock or investment strategy or those indicated in the “Portfolio Simulation” section are based on events that occurred in the past and do not represent in any way what may happen in the future and cannot guarantee its future performance. BullDude.com, its analysts, its contributors or its authors may have a position long or short in the securities mentioned and buy or sell the securities from time to time. For the full disclaimer click here.


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