Is Costco Wholesale Corporation (COST) a Good Value? – Wal-Mart Stores, Inc. (WMT), Target Corporation (TGT)

Target Corporation (NYSE:TGT)’s story is more of a company that has been successfully remodeling its stores. Indeed, its strength has been in growing comparable same store sales growth within what it describes as its ‘less discretionary frequency businesses.’ In other words, the staples are doing well, but discretionary spending remains weak. I think it is fair to read into this that, with Target Corporation (NYSE:TGT), it is a case of execution with core consumables rather than hitting the ball out of the park by sourcing and selling new discretionary spending items.

Where Next for Costco?

It looks like more of the same. Inflation is moderating, and this will continue to help gross margins while improvements in housing will help out some of COST’s lines. For example, I don’t think it is a coincidence that its strongest lines in the quarter were in hardware, patio, lawn & garden and tires. Consumers may well be resuming spending in housing and automobile related sectors (after a significant hiatus) but elsewhere things aren’t as good. In addition, the stock is looking like fair value on a historic basis.

COST Price / Sales Ratio TTM data by YCharts

Putting all these things together it is hard to see the stock appreciating significantly from here despite the strengthening economy.

Nevertheless a fairly valued stock can always ‘do its earnings’ in returns, and with analysts penciling in earnings growth in the teens for the next couple of years the stock looks attractive for those looking for some cyclical exposure.

The article Is this Retailer a Good Value? originally appeared on Fool.com and is written by Lee Samaha.

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