Just Buy This Retailer: Target Corporation (TGT)

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The United States’ biggest retailer and the world’s third largest public corporation, Wal-Mart Stores, Inc. (NYSE:WMT) , is trading at a forward P/E (1yr) of 12.58 and has a PEG of 1.56. It’s yielding 2.60% on its dividend and has a PEGY of 1.22. Using earnings estimates, I value Wal-Mart at $80. Therefore, it’s undervalued by almost 9% and appears to be one of the best buys in the retail sector. You can have a further look at my detailed take on Wal-Mart here.

On the other hand, Costco Wholesale Corporation (NASDAQ:COST) is trading at a forward P/E (1yr) of 20.56, which makes it one of the most expensive buys in the industry. It has a dividend yield of 1.10% and a PEG of 1.73. A growth rate of 14.5% testifies to the fact that the company is expected to do well in the coming years. A mean recommendation of 2.1 on the sell side suggests that it’s also one of the best buys in the industry.


Given the fact that the U.S. economy is still recovering at a snail’s pace, margins for the U.S. retailers are likely to remain low, at least until the end of 2013.  Furthermore, with the looming risk of another economic recession, shoppers are expected to refrain from excessive spending. As a result, Target Corporation (NYSE:TGT) isn’t expecting a lot from the U.S. market this year.

Target Corporation (NYSE:TGT)’s biggest catalyst this year will be its operations in Canada, where the company expects higher margins. According to the company, the majority of its 124 stores there will be opened this year, giving its margins a significant impetus. This in turn would drive its earnings up in 2013. In short, I recommend buying Target for an upside of at least 8%.

The article Just Buy This Retailer originally appeared on Fool.com and is written by Waqar Saif.

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