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Factors That May Propel Costco (COST) to Achieve New Highs
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Costco Wholesale Corporation (COST - Free Report) seems to be unfazed by tough retail scenario. Major chains are grappling with sluggish store and mall traffic as consumers choose to shop online from the comfort of their homes. But Costco looks much more disciplined in its approach to adapt to the changing retail landscape.
Shares of this membership warehouse retailer have surged 18.4% in the past six months, and has comfortably outperformed the Zacks categorized Retail-Discount & Variety industry’s decline of 1.9%. This Zacks Rank #3 (Hold) stock is currently trading at its 52-week high of $183.18, and we see no hindrances that can restrain it from attaining new highs. Further, the stock’s long-term earnings per share growth rate of 9.7% and a VGM Score of “B” portray its inherent strength.
Dominant Warehouse Retailer
We believe that Costco continues to be one of the dominant retail wholesalers based on the breadth and quality of merchandise offered. The company’s strategy to sell products at heavily discounted prices has helped it to remain on a growth track as cash-strapped customers continue to reckon Costco as a viable option for low-cost necessities. A differentiated product range enables Costco to provide an upscale shopping experience for its members, resulting in market share gains and higher sales per square foot. Moreover, the company continues to maintain healthy membership renewal rate. The company is also gradually expanding its eCommerce capabilities in the U.S., Canada, U.K., Mexico, Korea and Taiwan.
Continues with Positive Comps Performance
Costco continued with positive comparable-store sales (comps) performance driven by improved store traffic and average transaction size. Comps for May increased 4.1%, following an increase of 3% in April, 6% in March, 4% in February and 7% in January. Notably, net sales increased 7%, 5% 9%, 8% and 9% in May, April, March, February and January, respectively. The stock further got impetus following the company's upbeat performance in the third quarter of fiscal 2017. After missing earnings in the first and second quarters, Costco made a sharp come back with earnings beat in the third quarter. Total revenue also outperformed the estimate breaking its long streak of missing the same in the preceding nine quarters.
Concentrating on Enhancing Global Footprint
We are also encouraged by the company’s expansion strategy. Costco has one of the highest square footage growth in the industry, and remains committed to opening new clubs in the domestic and international markets. The company opened 23 and 29 net new outlets in fiscal 2015 and 2016, respectively, and plans to open nearly 26 net new outlets in fiscal 2017, of which approximately 13 are expected to be opened in the U.S. with the remaining in international markets. In our view, the company’s diversification strategy is a natural hedge against risks that may arise in specific markets.
Best Buy delivered an average positive earnings surprise of 33.8% in the trailing four quarters and has a long-term earnings growth rate of 11.8%.
Big 5 Sporting Goods delivered an average positive earnings surprise of 94.5% in the trailing four quarters and has a long-term earnings growth rate of 12%.
Children's Place delivered an average positive earnings surprise of 36.6% in the trailing four quarters and has a long-term earnings growth rate of 8%.
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Factors That May Propel Costco (COST) to Achieve New Highs
Costco Wholesale Corporation (COST - Free Report) seems to be unfazed by tough retail scenario. Major chains are grappling with sluggish store and mall traffic as consumers choose to shop online from the comfort of their homes. But Costco looks much more disciplined in its approach to adapt to the changing retail landscape.
Shares of this membership warehouse retailer have surged 18.4% in the past six months, and has comfortably outperformed the Zacks categorized Retail-Discount & Variety industry’s decline of 1.9%. This Zacks Rank #3 (Hold) stock is currently trading at its 52-week high of $183.18, and we see no hindrances that can restrain it from attaining new highs. Further, the stock’s long-term earnings per share growth rate of 9.7% and a VGM Score of “B” portray its inherent strength.
Dominant Warehouse Retailer
We believe that Costco continues to be one of the dominant retail wholesalers based on the breadth and quality of merchandise offered. The company’s strategy to sell products at heavily discounted prices has helped it to remain on a growth track as cash-strapped customers continue to reckon Costco as a viable option for low-cost necessities. A differentiated product range enables Costco to provide an upscale shopping experience for its members, resulting in market share gains and higher sales per square foot. Moreover, the company continues to maintain healthy membership renewal rate. The company is also gradually expanding its eCommerce capabilities in the U.S., Canada, U.K., Mexico, Korea and Taiwan.
Continues with Positive Comps Performance
Costco continued with positive comparable-store sales (comps) performance driven by improved store traffic and average transaction size. Comps for May increased 4.1%, following an increase of 3% in April, 6% in March, 4% in February and 7% in January. Notably, net sales increased 7%, 5% 9%, 8% and 9% in May, April, March, February and January, respectively. The stock further got impetus following the company's upbeat performance in the third quarter of fiscal 2017. After missing earnings in the first and second quarters, Costco made a sharp come back with earnings beat in the third quarter. Total revenue also outperformed the estimate breaking its long streak of missing the same in the preceding nine quarters.
Concentrating on Enhancing Global Footprint
We are also encouraged by the company’s expansion strategy. Costco has one of the highest square footage growth in the industry, and remains committed to opening new clubs in the domestic and international markets. The company opened 23 and 29 net new outlets in fiscal 2015 and 2016, respectively, and plans to open nearly 26 net new outlets in fiscal 2017, of which approximately 13 are expected to be opened in the U.S. with the remaining in international markets. In our view, the company’s diversification strategy is a natural hedge against risks that may arise in specific markets.
Three Key Picks
Investors may consider better-ranked stocks such as Best Buy Co., Inc. (BBY - Free Report) , Big 5 Sporting Goods Corporation (BGFV - Free Report) and The Children's Place, Inc. (PLCE - Free Report) all flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Best Buy delivered an average positive earnings surprise of 33.8% in the trailing four quarters and has a long-term earnings growth rate of 11.8%.
Big 5 Sporting Goods delivered an average positive earnings surprise of 94.5% in the trailing four quarters and has a long-term earnings growth rate of 12%.
Children's Place delivered an average positive earnings surprise of 36.6% in the trailing four quarters and has a long-term earnings growth rate of 8%.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look. See the pot trades we're targeting>>