Shares of Target (NYSE:TGT) and Kohl's (NYSE:KSS) rallied on Tuesday, as the cheap-chic retail giant and the popular department store chain reported solid results for the final quarter of fiscal 2018. Both companies also forecast strong earnings-per-share growth in fiscal 2019, far surpassing analysts' expectations.

However, Target and Kohl's took different paths to the same result. Accelerating sales growth has been the key to Target's rally over the past year. By contrast, cost discipline, aggressive inventory management, and a carefully controlled investment budget are driving Kohl's success.

Another quarter of strong growth for Target

Target posted excellent sales results throughout fiscal 2018. That trend continued last quarter, as the company reported comparable-sales growth of 5.3%. Target's stores delivered a 2.9% comp sales gain, while digital sales surged 31%, driving the other 2.4 percentage points of comp growth. Most of this increase came during the key November-December holiday shopping period, when Target's comp sales rose 5.7%.

Check out the latest earnings call transcript for Target and Kohl's.

The exterior of a Target store

Target posted stellar comp sales growth throughout fiscal 2018. Image source: Target.

Total revenue for the fourth quarter was almost exactly flat year over year at $23 billion, as the fourth quarter of fiscal 2017 had an extra week.

Meanwhile, adjusted EPS reached $1.53 in the fourth quarter and $5.39 for the full year. That was near the midpoint of Target's most recent guidance, which called for full-year adjusted EPS between $5.30 and $5.50.

Target's guidance for the upcoming year was even more impressive. The retailer expects its recent sales momentum to continue, with comp sales rising at a low- to mid-single-digit rate for both the first quarter and the full year. And whereas operating income declined slightly in fiscal 2018 -- Target's 15% adjusted EPS growth was driven entirely by tax reform and share buybacks -- management expects mid-single-digit operating income growth this year.

Target projected that adjusted EPS will rise to a range of $5.75 to $6.05, up 7% to 12% year over year. For comparison, the analyst consensus called for fiscal 2019 adjusted EPS of just $5.61.

Kohl's capitalizes on strong operational performance

During the 2017 holiday season, Kohl's achieved a stellar 6.9% comp sales gain. That meant the No. 2 department store chain faced an extremely difficult year-over-year comparison last quarter. As a result, comp sales rose 1.2% during the 2018 holiday season and 1% for the fourth quarter as a whole. Like Target, Kohl's had an extra week in the fourth quarter of fiscal 2017 compared to fiscal 2018, so total revenue declined 3.3% to $6.8 billion last quarter. For the full year, comp sales growth accelerated to 1.7% from 1.5% a year earlier.

The exterior of a Kohl's store

Image source: Kohl's.

Despite its relatively slow sales growth, Kohl's managed to post stronger EPS growth than Target last year. Adjusted EPS rose 20% to $2.24 in the fourth quarter and surged 34% to $5.60 for the full year. That beat the company's updated guidance range of $5.50 to $5.55, as well as the average analyst estimate of $5.55.

Kohl's also provided a bullish forecast for fiscal 2019. Management projected that comp sales will rise 0% to 2%, but that EPS would increase 4% to 10% to a range of $5.80 to $6.15. Analysts were expecting EPS of just $5.77 this year.

Two solid choices for investors

Even after rallying on Tuesday, shares of Target and Kohl's are quite cheap, trading at 13 times and 12 times the midpoint of their respective fiscal 2019 guidance ranges. Considering the earnings momentum both companies are displaying, both stocks look attractive right now.

That said, Kohl's stock appears to be more of a bargain, despite Target's superior sales growth. For one thing, recent history suggests that Kohl's may be starting with a more conservative forecast for the upcoming year. Target's full-year 2018 adjusted EPS of $5.39 fell within the company's initial guidance range of $5.15 to $5.45, whereas Kohl's easily surpassed the high end of the $4.95 to $5.45 adjusted EPS guidance range it provided a year ago.

Furthermore, Target has had to invest heavily to keep up with rivals like Walmart in terms of delivery, store pickup, and e-commerce functionality. By contrast, Kohl's already has a strong e-commerce presence and has needed only modest investments in its store base. The result is that Target's free cash flow lagged its net income last year, whereas free cash flow has routinely been higher than net income for Kohl's in recent years.

Indeed, while Target stock trades for a very reasonable 16 times trailing free cash flow, Kohl's stock is dirt cheap at just eight times trailing free cash flow. This strong cash flow is allowing Kohl's to rapidly reduce its debt, raise its dividend at a double-digit annual clip, and still buy back a substantial amount of stock. That makes Kohl's stock a great buy for long-term investors.