Target vs. Costco…Which One Should You Buy After Earnings? Dear Reader, It was the best of times, it was the worst of times.
I’m not referring to the classic Charles Dickens novel.
I’m referring to Target Corporation (TGT) and Costco Wholesale Corporation (COST).
Both retail giants announced earnings recently. And it was, indeed, a tale of two retailers.
Now, these two stocks are widely held by individuals and institutions alike. They also serve as a bellwether for the health of the U.S. Consumer.
So, I thought we should spend some time dissecting the earnings reports of both companies in today’s Market 360. Then, I’ll tell you which stock I think is the better buy – and how you can find more fundamentally superior stocks like it.
Let’s dive in... A Recap of the Numbers Target Corporation (TGT) – May 22, 2024
Last Wednesday, Target released its earnings report before the opening bell on Wednesday, May 22. And they just missed the mark.
For its first quarter, earnings were $2.03 per share on $24.53 billion in revenue, just missing analysts’ expectations of $2.06 earnings per share on $24.52 billion in revenue. That’s also a 3% decline from $25.32 billion in revenue in the same quarter a year ago.
This was the first time Target posted an earnings “miss” since November 2022.
The big culprit was customer traffic, including online and in-store, which fell 1.9%. Same-store sales dropped 3.7%.
CFO Brian Cornell commented that consumers were weary from persistent inflation. He noted that it was the biggest challenge for Target shoppers, especially for food and household essentials.
Company management also said that Target’s struggles could continue into the second quarter. They issued guidance for second-quarter adjusted earnings of $1.95 to $2.35 per share, compared with $1.80 per share last year. Wall Street was looking for $2.19 per share.
Investors were clearly unhappy with the results. Shares of Target closed about 8% lower on Wednesday. The stock has since regained much of that lost ground, though. That’s likely because investors digested Target’s announcement that it would slash prices on 5,000 items such as milk, meat and bread. Costco Wholesale Corporation (COST) – May 30, 2024
On Friday, Costco released fiscal third-quarter earnings and sales results after the closing bell.
Third-quarter sales rose 9.1% year-over-year to $57.39 billion. Earnings increased 29.2% year-over-year to $1.68 billion or $3.78 per share. The consensus estimate called for sales of $58.07 billion and earnings of $3.70 per share. So, Costco posted a slight sales miss and a 2.3% earnings surprise.
Unlike Target, Costco’s same-store sales were up – by 6.5%. Meanwhile, the company’s membership fees were up 8%, to $1.12 billion.
Costco dipped slightly in the wake of the report, ending Friday down just 0.67%.
Now, Costco doesn’t typically share guidance, and this time was no different.
But it’s worth noting that, unlike Target, Costco isn’t desperately slashing prices to compete for customers. As a recent article in The Wall Street Journal pointed out, the fact that you need a membership to shop at Costco means the warehouse chain’s clientele is going to be higher income than the average retail chain. As such, they are going to have more cash to spend than, say, Target or Walmart (WMT).
What’s more, the company’s recent results show that its shoppers are not only loading up on household essentials (like food) but also on discretionary goods like TVs and playground sets. However, just like everyone else, they are looking to save money on those big-ticket purchases, too.
Also interesting is the fact that Costco began selling gold bars in August of last year, and it has become a major cash cow. According to a Wells Fargo report, it estimates that Costco is selling as much as $200 million in gold bars a month! In fact, gold contributed to the 20.7% of e-commerce growth last quarter. So, Which One is the Better Buy? Now that we’ve reviewed the numbers, which one is the better buy?
According to my Portfolio Grader, the answer is clear: Costco.  Costco gets a Total Grade of A, making it a Strong Buy. Target, meanwhile, gets a Total Grade of C, making it a Hold.
The real difference maker here is Costco’s Quantitative Grade. It gets an A, which is an indicator of persistent and strong institutional buying pressure. That makes Costco the clear choice. I should also add that Costco is perhaps my favorite retailer. It’s just an incredibly well-run company, folks. If you want a company catering to rich people, this is the company that caters to rich people. They show up in their SUVs and load up on stuff. The average Costco buyer is very affluent and they’re very loyal to their gas stations.
It’s why I recommended Costco to my Growth Investor subscribers back in January of this year, and it is already up by about 20% at the time of this writing.
In comparison, the S&P 500’s is only up by 7.8%.
This is a great example of why you want to own stocks with superior fundamentals that can outperform the broader market.
And my Growth Investor service is the perfect place to find them.
Look, I’ve been in the markets for about four decades, and one thing never changes...
Stocks with superior fundamentals almost always win out in the end. And those that don’t have strong fundamentals eventually end up in the garbage.
I want to make sure you own the crème de la crème of the market – but I’m growing deeply worried that some folks are setting themselves up for a big disappointment. This has nothing to do with retail, but rather artificial intelligence stocks.
The fact is I see some people falling into the same trap with AI stocks that they did during the internet stock bubble of the 1990s.
A lot of people think the same tried-and-true rules of “what works” on Wall Street don’t apply this time. In other words, they think the fundamentals don’t matter – as long as it’s an “AI” stock, it will go up.
They’re in for a rude awakening.
I predict the speculative frenzy around AI is going to come crashing down soon... just like every other market mania before it.
I don’t want you to be caught off guard when this crash happens. That’s why I’m issuing an urgent warning about the AI “losers,” that won’t survive – and how you can find the select few AI stocks with solid fundamentals that you can make a lot of money.
Go here to learn more right now.
(Already a Growth Investor subscriber? Click here to access the members-only website.)
Sincerely, |
| Louis Navellier
Editor, Market 360
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Costco Wholesales Corporation (COST) |
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