Target vs. Costco: Which Discount Retail Stock Offers More Upside Now?

Target Corporation TGT and Costco Wholesale Corporation COST are two of the most prominent names in the U.S. discount retail space, serving value-conscious consumers. Target, with a market capitalization of around $45 billion, is a leading general merchandise retailer known for its strong private-label portfolio, omnichannel capabilities and broad product mix spanning essentials, apparel, home goods and electronics. The company operates nearly 2,000 stores across the United States, supported by a robust digital ecosystem.Conversely, Costco, with a market capitalization of about $380 billion, operates more than 923 membership warehouses worldwide, including a significant footprint in the United States. Costco has built a highly resilient retail model anchored by recurring membership fees, rapid inventory turnover and a curated assortment that drives strong customer loyalty. Its value proposition remains compelling in an inflation-sensitive environment, supported by consistent traffic trends, pricing power and growing penetration in categories like fresh food, pharmacy and fuel.Both retailers are navigating a dynamic consumer landscape shaped by shifting spending priorities, moderating inflation and heightened competition. While Target is working to reaccelerate discretionary demand and improve margins through inventory discipline and operating efficiencies, Costco continues to benefit from steady membership growth and a value-centric model that performs well across economic cycles. For investors, the key question remains: which discount retail stock offers more upside now?The Case for TGTAfter a period of margin pressure, driven by excess inventory, higher shrink and weaker discretionary demand, Target has made visible progress. Management’s efforts in cleaning up inventory and improving operating discipline are starting to show in cleaner execution.Target is leveraging its strong brand presence and diverse product portfolio, along with expanding e-commerce capabilities and a growing store footprint, to solidify its market position. Digital comparable sales increased 2.4% in the third quarter of fiscal 2025, driven by strong adoption of same-day services. Same-day delivery through Target Circle 360 rose more than 35%.The company’s digital ecosystem continues to scale profitably. Target Plus delivered nearly 50% growth in gross merchandise value, reflecting expanding third-party assortment and improved marketplace engagement. At the same time, Roundel posted mid-teens revenue growth, highlighting the strength of Target’s retail media platform and its ability to monetize traffic and data more effectively. Together, these platforms are enhancing margin resilience and diversifying revenue streams beyond traditional merchandise sales.Technology-led innovation remains a key differentiator for Target. The company is extending its leadership in AI-enabled retail through a first-of-its-kind conversational shopping experience integrated with ChatGPT. This capability allows guests to browse curated assortments, complete multi-item purchases, shop fresh food and select Drive Up, Pickup or shipping options in a single, seamless journey. Personalized recommendations enhance engagement, supporting Target’s strategy to blend convenience, discovery and value across touchpoints.Operational execution is improving as advanced analytics enhance demand forecasting, assortment planning, and speed to market. Tools like Target Trend Brain and synthetic audiences help identify trends early and test consumer response before launch. On-shelf availability for key items improved more than 150 basis points year over year, reflecting stronger inventory forecasting and in-stock execution. Target plans to increase capital expenditure 25% to $5 billion in fiscal 2026 to support store remodels, larger-format locations, expanded fulfillment and major floor-pad upgrades.Despite the positives, Target continues to face meaningful near-term headwinds, as cautious consumers continue to prioritize essentials over discretionary purchases. Even though the company’s recent quarterly performance aligned with management’s expectations, results remained pressured by weaker traffic trends and softer in-store momentum.Discretionary categories such as Home and Apparel continue to lag. This softness has weighed on merchandise performance and, in turn, limited earnings momentum, prompting management to adopt a more conservative outlook for the near term. TGT narrowed its full-year adjusted EPS outlook to $7.00-$8.00 compared with the prior mentioned $7.00-$9.00.The Case for COSTCostco’s competitive strength lies in its membership-based model, which supports steady and highly predictable earnings. Membership fees generate a reliable, high-margin revenue stream, while consistently strong renewal rates reflect deep customer loyalty. Backed by bulk purchasing power and an efficient supply chain, Costco can maintain attractive pricing for shoppers. Additionally, Costco’s private brand Kirkland Signature remains a major competitive advantage, strengthening customer stickiness while supporting margin structure.The company has also been strategic in adapting to shifting consumer preferences. Its merchandising approach balances essential everyday products with a curated selection of unique, high-demand items, driving both foot traffic and additional spending. By relying on data-driven insights, Costco has been able to expand selectively in domestic and international markets without adding operational complexity.Digital growth stood out in the first quarter of fiscal 2026, with digitally enabled comparable sales increasing more than 20%, supported by stronger website traffic and app engagement. Management noted that digital initiatives are helping the company better monetize its product mix, particularly in non-food and big-ticket categories, while still enhancing and not replacing the in-store shopping experience.Operational efficiency remains another key advantage. Costco reported meaningful productivity gains from pre-scan technology, which improved checkout speed in warehouses. AI-driven pharmacy inventory systems helped lift in-stock levels and supported solid growth in prescription volumes. Same-day delivery offerings, enabled through partnerships with third-party platforms in the U.S. and international markets, also performed well in the quarter, extending convenience with limited capital intensity.That said, Costco continues to operate with thin merchandise margins. Wage inflation, logistics expenses and ongoing technology investments could pressure margins in the near term. In addition, the demand for discretionary items may fluctuate with consumer spending trends. While Costco’s model remains highly durable, maintaining execution discipline and cost control will be key to sustaining the long-term performance.How Does the Zacks Consensus Estimate Compare for TGT & COST?The Zacks Consensus Estimate for Target’s current fiscal-year sales and EPS implies year-over-year declines of 1.6% and 17.7%, respectively. The consensus estimate for EPS for the current fiscal year has declined 13 cents to $7.29 over the past 60 days. Image Source: Zacks Investment Research The Zacks Consensus Estimate for Costco’s current fiscal-year sales and EPS suggests year-over-year increases of 7.5% and 11.7%, respectively. The consensus estimate for EPS for the current fiscal year has moved upward by 12 cents to $20.09 over the past 60 days. Image Source: Zacks Investment Research Stock Performances of TGT & COSTOver the past year, shares of Target have slumped 28.8%, whereas Costco has declined 7.1%. Image Source: Zacks Investment Research Dive Into Stock Valuations of TGT & COSTTarget is trading at a forward price-to-sales (P/S) multiple of 0.41, below its median of 0.57 in the last three years. Costco’s forward 12-month P/S multiple sits at 1.28, below its median of 1.33 in the last three years. Image Source: Zacks Investment Research TGT or COST: Which Is the Better Bet Now?Costco stands out as the stronger investment candidate, supported by its membership-based business model, high customer loyalty and consistent operational efficiency. Recurring membership fees provide a reliable, high-margin income stream, while strong renewal rates demonstrate the company’s value proposition. Selective domestic and international expansion, data-driven merchandising, and digital initiatives drive traffic and sales without undermining in-store performance, reinforcing Costco’s competitive position.While Target is making progress with digital initiatives, AI-driven operations and merchandising innovation, it faces soft traffic, underperforming higher-margin categories and promotional pressures. In contrast, Costco’s defensive positioning makes it the better option to hold, offering a clearer path to stable, long-term growth. Both Target and Costco currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Zacks Naming Top 10 Stocks for 2026Want to be tipped off early to our 10 top picks for the entirety of 2026? History suggests their performance could be sensational.From 2012 (when our Director of Research Sheraz Mian assumed responsibility for the portfolio) through November, 2025, the Zacks Top 10 Stocks gained +2,530.8%, more than QUADRUPLING the S&P 500’s +570.3%.Now Sheraz is combing through 4,400 companies to handpick the best 10 tickers to buy and hold in 2026. Don’t miss your chance to get in on these stocks when they’re released on January 5. Be First to New Top 10 Stocks >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Target Corporation (TGT): Free Stock Analysis Report Costco Wholesale Corporation (COST): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks