Costco vs. Target: Which Discount Retailer Stock Holds More Promise?

Costco Wholesale Corporation COST and Target Corporation TGT are two of the most recognized names in the Retail–Discount Stores industry. Costco, with a massive market capitalization of about $433 billion, operates a membership-based warehouse model focused on selling bulk goods at discounted prices. Target, with a market capitalization of nearly $42 billion, operates as a general merchandise retailer, catering to a broad consumer base with a mix of essential goods, apparel, electronics and household items. It’s worth comparing them now because both are facing macroeconomic challenges and a cautious consumer spending environment. Yet their stock performances and financial trends have been moving in different directions, making it a good time to dig into what’s working for each and which one looks more promising now.The Case for CostcoCostco’s resilient business model, centered around a membership-based structure, continues to be a major growth driver. The company’s high membership renewal rates, coupled with its efficient supply chain management and bulk purchasing power, ensure competitive pricing. Importantly, the renewal rate remained extremely strong at 93% in the United States and Canada and 90.5% worldwide. This robust model has allowed Costco to thrive, even during economic downturns.Members pay an annual fee for access to Costco’s warehouses, where they enjoy significant discounts on a wide range of products. This structure not only ensures a reliable revenue stream but also fosters a sense of value and exclusivity. In the second quarter of fiscal 2025, membership fee income rose 7.4% year over year to $1,193 million. A recent fee increase contributed roughly 3% to that figure, with the most significant impact expected in the final quarter of this fiscal year and the first quarter of the next.Costco continuously adapts to market trends and consumer preferences. The company regularly updates its product offerings to include a mix of everyday essentials and unique, high-demand items. Through market analysis and tailored offerings, Costco has expanded its presence, both domestically and internationally. In fiscal 2025, the company plans to open 28 new warehouses — 15 in the United States, three in Canada and seven in other international markets, with three relocations. Moreover, Costco’s digital and e-commerce initiatives continue to gain momentum, with comparable online sales jumping 20.9% in the second quarter. However, some headwinds remain. Foreign exchange volatility and potential tariffs on key imports introduce an element of uncertainty. Meanwhile, a consumer shift toward essential items is softening demand for discretionary categories, presenting near-term challenges for retail growth.The Case for TargetTarget is leveraging its strong brand presence, diverse product portfolio and expanding e-commerce capabilities, alongside a growing store footprint, to solidify its market position and drive sustainable growth. By prioritizing innovation and integrating AI technology, the company is laying a solid foundation for long-term success. Target has outlined a comprehensive strategy to generate more than $15 billion in revenue growth by fiscal 2030.To support this growth, the company plans to open more than 20 new stores and remodel several existing locations in fiscal 2025. Complementing its physical expansion, Target’s investments in same-day delivery, curbside pickup and personalized digital services continue to enhance customer convenience and loyalty. Same-day services powered by Target Circle 360 grew more than 25% during the final quarter of fiscal 2024. Target Circle membership increased by 13 million new members in 2024.To boost efficiency, Target is modernizing inventory management with AI-driven solutions that optimize stock availability and delivery speed. The company is also introducing new package delivery solutions that leverage existing supply-chain assets and its Shipt service, ensuring faster and more reliable order fulfillment. Target remains committed to innovation and customer satisfaction, striving to deliver unique shopping experiences while maintaining value. The company plans to invest $4 billion to $5 billion in store remodels, supply-chain expansion and digital transformation in fiscal 2025.Despite these strategic efforts, Target has issued a cautious outlook for the first quarter of fiscal 2025. The Minneapolis, MN-based retailer anticipates significant year-over-year profit pressure in the first quarter compared to the rest of the year owing to ongoing consumer uncertainty, a slight decline in February net sales, tariff concerns and the expected timing of certain expenses throughout the fiscal year. Target’s guidance for fiscal 2025 remains measured. The company expects net sales to grow by approximately 1%, with comparable sales remaining flat. While a modest improvement in the operating margin is anticipated, projected adjusted earnings of $8.80-$9.80 per share suggest only limited upside from the prior year’s $8.86, reinforcing the conservative tone of management's outlook.COST vs. TGT: How Do Estimates Stack Up?The Zacks Consensus Estimate for Costco’s earnings per share (EPS) for the current and next fiscal years has increased by a penny and 3 cents, reaching $17.95 and $19.75, respectively, over the past 30 days. This suggests projected year-over-year growth rates of 11.4% and 10%, respectively. (See the Zacks Earnings Calendar to stay ahead of market-making news.) Image Source: Zacks Investment ResearchThe consensus estimate for Target’s EPS for the current and next fiscal years has decreased by 19 cents and 30 cents, reaching $8.99 and $9.62, respectively, over the past 30 days. However, the estimates still indicate year-over-year growth rates of 1.5% and 6.9%, respectively.  Image Source: Zacks Investment ResearchCOST vs. TGT: A Look at Past Six-Month Stock PerformanceDespite operating in the same industry, the stock trajectories of Costco and Target have moved in starkly opposite directions. Shares of Costco have advanced 9.5% over the past six months, outpacing the industry’s modest rise of 4.3%. In contrast, Target shares have plunged 39.1%, underperforming both its peer and the industry. Image Source: Zacks Investment ResearchCOST vs. TGT: A Dive Into Stock ValuationCostco is trading at a forward 12-month price-to-earnings (P/E) ratio of 51.05, higher than its one-year median of 49.85. Meanwhile, Target’s forward P/E ratio stands at 10.09, below its median of 14.76. Image Source: Zacks Investment ResearchCOST vs. TGT: Which Stock Looks More Promising Now?When compared with Target, Costco seems to have a clear edge. Its resilient membership-based model, strong renewal rates and continued global expansion efforts support long-term growth. While Target is pushing forward with digital innovation and operational upgrades, its cautious near-term outlook and margin pressures temper expectations. With clear strategic direction and stronger momentum, Costco stands out as the more promising pick for now. Both COST and TGT stocks carry a Zacks Rank #3 (Hold). 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Click to get this free report Target Corporation (TGT): Free Stock Analysis Report Costco Wholesale Corporation (COST): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks