Target Corporation (TGT) and BJ’s Wholesale Club Holdings, Inc. (BJ) are two established players in the retail industry. TGT sells a broad range of household goods, food and pet supplies, apparel and accessories, electronics, decor, and other items under national brands and owned and exclusive brands. BJ is a one-stop shopping destination filled with various brands, including its exclusive Wellsley Farms and Berkley Jensen brands, along with USDA Choice meats and organic food products.
The retail industry was shaken severely during the pandemic, with COVID-19 related restrictions leading bringing store operations to a halt last year. To stay afloat and compete with mega e-commerce players such as Amazon (AMZN), many retail players invested heavily to establish or enhance their online stores. Now that the waning coronavirus threat is leading consumers back to brick-and-mortar retailers--many of which them are already performing well with their online platforms--we think retailers TGT and BJ should witness solid growth.
While TGT has gained 85.4% over the past year, BJ has returned 59.3%. Furthermore, TGT has gained 28.7% over the past six months versus BJ’s 9.9%. But which of these two stocks is a better pick now? Let's find out.
Click here to checkout our Retail Industry Report for 2021
Latest Movements
On April 27, 2021, TGT declared its collaboration with Hilton Carter. Hilton Carter features modern live and faux plants and accessories designed to spread joy and encourage guests to bring the outside in. The collaboration will allow TGT to deliver refined spring products with a touch of greenery, representing a unique offering to its customer base.
BJ announced on May 20 that it is expanding its footprint by opening six new clubs this fiscal year. The clubs will have extensive selections of fresh foods, a full-service deli and household essentials, such as paper products, cleaning products, diapers, pet supplies and more. This may help the company retain customers.
Recent Financial Results
TGT’s revenue increased 23.3% year-over-year to $23.90 billion for the first quarter ended May 1. The company reported $2.10 billion in a net income, which represents a 638.4% year-over-year decrease. Its EPS has declined 636.8% from the prior-year quarter to $4.20.
For the first quarter, ended May 1, BJ’s revenue increased 1.9% year-over-year to $3.90 billion. Its net income decreased 14.8% from the same period last year to $81.60 million. Also, its EPS came in at $0.59, down 14.5% year-over-year.
Past and Expected Financial Performance
TGT’s revenue has increased at an 8.8% CAGR over the past three years. Its annual revenue is expected to increase 4.1% in fiscal 2022 and 3.2% in fiscal 2023. The company’s EPS is expected to grow 20% in its fiscal year 2022, and 2.4% in 2023. Also, TGT’s EPS is expected to grow at a 10.1% rate per annum over the next five years.
In comparison, BJ’s revenue has increased at a 6.6% CAGR over the past three years. Analysts expect the company’s annual revenue to increase 5.6% in its fiscal year 2023. Its EPS is expected to grow 9.8% in l 2023. Also, its EPS is expected to decline at a rate of 1.7% per annum over the next five years.
Profitability
TGT’s $93.56 billion trailing-12-month revenue is much higher than BJ’s $15.43 billion. Moreover, TGT is more profitable, with a net income margin of 4.67% versus BJ’s 2.73%.
Also, TGT’s ROA and EBIT margin of 8.78% and 7.06%, respectively, compare favorably with BJ’s 7.52% and 4.16%.
Valuation
In terms of forward EV/Sales, TGT is currently trading at 1.16x, 45.7% higher than BJ’s 0.63x. TGT is also more expensive in terms of trailing-12-month P/S, 1.19x versus BJ’s 0.41x.
So, BJ is the more affordable stock.
POWR Ratings
TGT has an overall A rating, which equates to a Strong Buy in our proprietary POWR Ratings system. However, BJ has an overall B rating, which represents a Buy. The POWR Ratings are calculated by considering 118 different factors, with the weighting of each optimized to improve overall performance.
BJ has an A grade for Value. This is justified because its 0.63x forward EV/Sales is 71.2% lower than the 2.19x industry average. However, TGT has a B grade for Value. This is in sync with the company’s 1.16x forward EV/ sales, which is 27.4% lower than the 1.59x industry average.
Both TGT and BJ have a B grade for Momentum, consistent with their returns over the past year and past six months.
Of the 39 stocks in the A-rated Grocery/Big Box Retailers industry, TGT is ranked #1, while BJ is ranked #22.
In addition to the POWR Ratings grades we’ve just highlighted, both TGT and BJ are graded for Growth, Quality, Sentiment and Stability. Click here to see the additional ratings for TGT. Also, get all of BJ’s ratings here.
The Winner
While both TGT and BJ are well positioned to benefit in the coming months based on industry tailwinds, TGT is expected to perform better based on its superior growth in financials and higher profitability.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about other top-rated stocks in the Grocery/Big Box Retailers industry.
Click here to checkout our Retail Industry Report for 2021
TGT shares were trading at $226.47 per share on Friday afternoon, up $4.68 (+2.11%). Year-to-date, TGT has gained 29.17%, versus a 11.60% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand.
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