1 Stock Is A Better Investment Than Wal-Mart

Shares of Target (NYSE: TGT  ) took a hit hard after its credit card breach. Since then, the stock recovered a bit and is only down 5% year to date. It is bringing in a new CEO to help further progress in Canada and hopefully polish up the company's image. Target is still well behind Wal-Mart Stores  (NYSE: WMT  ) when it comes to international expansion, meaning that it could still be a growth story.

The real reason for a new CEO
Target ousted its CEO earlier this month and plans on bringing in an outside CEO to replace him. This could be a positive move, as the company could use a fresh start. Target's former CEO took over in 2008 and never really managed to get a grip on the company's strategies. The company could use a new perspective on merchandising, e-commerce, and growth in Canada. Regaining consumer trust will be the company's primary focus. 

Despite popular belief, the old CEO wasn't ousted only because of the credit card breach--Target has had issues with getting its Canadian operations jump-started. It opened slightly more than 120 stores last year and three distribution centers in Canada.

This was its first foray into the international markets, whereas Wal-Mart already operates in 27 countries. Target saw expenses in Canada skyrocket, as stores were experiencing supply chain congestion. This left stores both unstocked and overstaffed.

The retail giant
Wal-Mart, the largest retailer in the world, also happens to be Target's top competitor, and the competition is heating up. Wal-Mart is turning to a smaller format for its stores--the goal is to be able to enter smaller markets. The new smaller-format stores will also be equipped with gas stations. The company believes having gas stations will help it gain more traffic.

At the end of last year, it announced plans to open some 270 to 300 smaller-format stores, which is up from its previous plans of 120 to 150 stores. If all goes as planned, that'll put Wal-Mart's small store count at 620 to 650 by year-end; this would put the company close to its small-store goal of 700 by 2017. 

Watch out for the dollar stores
The biggest threat to the major department retailers appears to be the dollar stores. Wal-Mart is moving in on their territory by starting to build smaller stores. Dollar General (NYSE: DG  ) is the undisputed leader in the U.S. dollar store market, boasting a store base of more than 10,000 stores.

Dollar General might still be able to offer value to shoppers, as its stores are only around 7,000 square feet on average. This allows shoppers to navigate its stores relatively easy. Meanwhile, Wal-Mart's small-format stores will all be larger than 7,000 square feet. Its Neighborhood Markets average 38,000 square feet, and Express stores average 15,000 square feet. Dollar General is also growing its store count at an impressive rate. It plans on opening 700 stores this year compared to the 650 it opened last year.

How shares stack up
Wal-Mart trades at a P/E ratio of 16 based on next year's earnings estimate. Its dividend yield is 2.4%. Target trades at a slight premium, with a P/E ratio of 19. Target trades with a higher dividend yield, coming in at 2.9%. Factoring in Wall Street's consensus growth expectations, Target has a P/E-to-growth (PEG) ratio of 1.2, while Wal-Mart's is 1.8.

Then there's Dollar General, which has the lowest PEG ratio of the three, coming in at 1.1. Its P/E, based on next year's earnings, is also the lowest, at 13.7; however, Dollar General does not offer a dividend.

Bottom line
While Wal-Mart is the undisputed leader in the retail space, Target might be the better value and growth story. Target still has a number of opportunities ahead of it, including international expansion. This is a market that Wal-Mart has already tapped. For investors looking for a solid investment in retail, Target is worth a closer look.

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