Target Corporation (TGT), Wal-Mart Stores, Inc. (WMT): Targeting A Company With Longer Legs

Interestingly, Costco Wholesale Corporation (NASDAQ:COST), which competes with Wal-Mart’s Sam’s Club, also effectively uses customer experience to take on the giant retailer. While that may not seem possible in a club store format, it pays particular attention to its employees. Happy employees translates into happier customers. I personally switched to Costco for this very reason. Employee relations have never been a strong suit for Wal-Mart Stores, Inc. (NYSE:WMT).

Making Money

Also, Wal-Mart, focused on low prices, simply doesn’t turn as much of the top line into results on the bottom line as its main competitor. In fact, Target Corporation (NYSE:TGT)’s gross margin, its sales minus its cost of goods divided by sales, is notably higher than Wal-Mart’s. Its operating margin, operating earnings divided by revenues, is generally higher, too.

This isn’t surprising based on the more varied businesses contained inside of Wal-Mart. For example, Costco’s gross margin and operating margin are less than half of Target’s margins. Since Sam’s Club is part of Wal-Mart’s overall mix, results can’t help but be dragged down.

A Better Wal-Mart?

Conservative investors looking to collect a growing dividend stream from an industry leader would do well to consider Wal-Mart. It offers sales channel and international diversification on a scale not available in any other single company, and it is financially strong.

Investors looking for a large cap growth company, however, would be better served with Target. It looks to have many more years of expansion ahead as it, too, reaches into foreign markets.

That said, pairing Target Corporation (NYSE:TGT) with Costco would be an interesting way to create a more nimble Wal-Mart Stores, Inc. (NYSE:WMT) like holding. That combination would still have years of expansion ahead, but provide the channel diversification that Target alone lacks.

The article Targeting A Company With Longer Legs originally appeared on Fool.com and is written by Reuben Gregg Brewer.

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