A Battle for the Consumer: Costco vs. Target Stock
This week, we are pitting the earnings of two mega department stores against each other, Costco Wholesale Corp. (Nasdaq: COST) and Target Corp. (NYSE: TGT).
Both report quarterly numbers this week, but it may be a tale of two paths.
Costco is a giant warehouse department store. You have to have a membership to shop there, and its online sales are slowly picking up.
Meanwhile, Target stores are more populated across the country. No membership is required, and the convenience of its online ordering has doubled the stock’s value over the last 12 months.
Here’s what we can expect when these two giants report earnings this week.
Retail Face-Off: COST vs. TGT
Stock No. 1: Target (NYSE: TGT)
Earnings Announcement Date: Tuesday, March 2, before the open.
Expectations: Earnings at $2.53 per share. Revenue at $27.4 billion.
Average Analyst Rating: Outperform.
Target has been one of the few companies to stay open and thrive during the pandemic. From groceries to cleaning supplies, Target has it all.
But what helped the stock even more is its growing online platform.
Consumers turned to online sales during the pandemic, a shift that isn’t going away. And Target has been winning them over. In its last quarter, digital sales jumped 155%. Same-day services (in-store pickup, drive-up and Shipt) grew 217%.
The trend may slow, but it looks like Target is winning the consumer race for now. Investors believe that too. Look at the strong price channel for the stock.
TGT’s Strong Upward Trend
Shares have doubled from lows last year, but the major support line is holding.
Earnings have a way of breaking trend lines on a big move. This is one trend Target shareholders don’t want to see give out.
The options market is looking for a 3.7% move this week.
As long as the consumer sticks with Target, you don’t want to bet against the company.
Stock No. 2: Costco Wholesale Corporation (Nasdaq: COST)
Earnings Announcement Date: Thursday, March 4, after the close.
Expectations: Earnings at $2.42 per share. Revenue at $43.7 billion.
Average Analyst Rating: Outperform.
Costco benefited from the pandemic, being an essential store that stayed open, but it was hurt in many areas.
For example, gasoline sales plummeted as consumers stopped going out. Costco even cut back on marketing its high-margin items that helped drive profits as consumers were just looking for the basics. It also closed its food courts, which have become a staple for the warehouse.
But, what is impacting it now, is rising wages.
Costco is known for paying its employees well for a wholesaler, and just last week, it announced a $16 minimum wage.
Say what you want about wages, but they hurt profitability in the short-term.
And Costco’s share price is feeling all of these headwinds. The stock is down more than 10% since December.
Don’t Fight COST’s Trend
Here’s one rule to trade by: Don’t fight the trend.
And the trend for Costco is heading lower. It may get a bounce on earnings. But until it can break above the red resistance level, your upside is limited.
The options market isn’t expecting this event to move the needle much. It’s only pricing in a 2% move.
From the looks of it, one company has become a clear winner of the consumer in these unique times — Target.
It built a better online presence, offered the items consumers willingly ventured out for, and its convenient footprint allowed Target to thrive during the pandemic.
You want to stay with Target for now.
Chad Shoop is a Chartered Market Technician and options expert for Banyan Hill Publishing. He is the editor of three leading newsletters: Quick Hit Profits, Automatic Profits Alert and Pure Income. His content is frequently published on Investopedia and Seeking Alpha. Check out his YouTube Channel to see his latest market insights.
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Investing has consumed my life since college. While double majoring in finance and economics at the University of North Carolina at Greensboro, I founded the university’s economics club, joined the finance club and participated in the Chartered Financial Analyst research competition to represent our school.