Analyzing Big Lots (BIG) & Costco Wholesale Corporation (COST)

Big Lots (NYSE: BIG) and Costco Wholesale Corporation (NASDAQ:COST) are both mid-cap retail/wholesale companies, but which is the better business? We will compare the two businesses based on the strength of their profitability, risk, dividends, institutional ownership, analyst recommendations, earnings and valuation.

Volatility & Risk

Big Lots has a beta of 0.92, meaning that its stock price is 8% less volatile than the S&P 500. Comparatively, Costco Wholesale Corporation has a beta of 0.93, meaning that its stock price is 7% less volatile than the S&P 500.

Institutional and Insider Ownership

72.4% of Costco Wholesale Corporation shares are owned by institutional investors. 1.7% of Big Lots shares are owned by insiders. Comparatively, 0.7% of Costco Wholesale Corporation shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock is poised for long-term growth.

Profitability

This table compares Big Lots and Costco Wholesale Corporation’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Big Lots 3.31% 30.32% 11.10%
Costco Wholesale Corporation 2.06% 20.45% 6.88%

Dividends

Big Lots pays an annual dividend of $1.00 per share and has a dividend yield of 2.0%. Costco Wholesale Corporation pays an annual dividend of $2.00 per share and has a dividend yield of 1.2%. Big Lots pays out 26.0% of its earnings in the form of a dividend. Costco Wholesale Corporation pays out 34.7% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Big Lots has raised its dividend for 2 consecutive years and Costco Wholesale Corporation has raised its dividend for 13 consecutive years. Big Lots is clearly the better dividend stock, given its higher yield and lower payout ratio.

Analyst Recommendations

This is a breakdown of current ratings and target prices for Big Lots and Costco Wholesale Corporation, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Big Lots 0 4 7 1 2.75
Costco Wholesale Corporation 0 8 19 0 2.70

Big Lots currently has a consensus target price of $57.73, indicating a potential upside of 17.69%. Costco Wholesale Corporation has a consensus target price of $178.83, indicating a potential upside of 11.13%. Given Big Lots’ stronger consensus rating and higher possible upside, equities analysts clearly believe Big Lots is more favorable than Costco Wholesale Corporation.

Earnings and Valuation

This table compares Big Lots and Costco Wholesale Corporation’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Big Lots $5.20 billion 0.40 $380.71 million $3.84 12.77
Costco Wholesale Corporation $123.28 billion 0.57 $5.19 billion $5.77 27.89

Costco Wholesale Corporation has higher revenue and earnings than Big Lots. Big Lots is trading at a lower price-to-earnings ratio than Costco Wholesale Corporation, indicating that it is currently the more affordable of the two stocks.

About Big Lots

Big Lots, Inc. is a non-traditional, discount retailer operating in the United States. As of January 28, 2017, the Company operated a total of 1,432 stores. The Company operates through the discount retailing segment. As of January 28, 2017, the Company’s stores are located at various states of the United States, such as Alabama, Arizona, California, Colorado, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Maine, Michigan, Montana, Nevada, Nebraska, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, South Carolina, Texas, Utah and Washington. The Company’s merchandise categories include Furniture, Seasonal, Soft Home, Food, Consumables, Hard Home, and Electronics, Toys, & Accessories.

About Costco Wholesale Corporation

Costco Wholesale Corporation is engaged in the operation of membership warehouses in the United States and Puerto Rico, Canada, the United Kingdom, Mexico, Japan, Australia, Spain, and through its subsidiaries in Taiwan and Korea. As of August 28, 2016, the Company operated 715 warehouses across the world. The Company’s average warehouse space is approximately 144,000 square feet. The Company’s warehouses on average operate on a seven-day, 70-hour week. The Company offers merchandise in various categories, which include foods (including dry foods, packaged foods and groceries); sundries (including snack foods, candy, alcoholic and nonalcoholic beverages, and cleaning supplies); hardlines (including appliances, electronics, health and beauty aids, hardware, and garden and patio); fresh foods (including meat, produce, deli and bakery); softlines (including apparel and small appliances), and other (including gas stations and pharmacy).

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