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Costco Wholesale Corporation (COST) Hit a 52 Week High, Can the Run Continue?

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Have you been paying attention to shares of Costco (COST - Free Report) ? Shares have been on the move with the stock up 4.2% over the past month. The stock hit a new 52-week high of $729.06 in the previous session. Costco has gained 9.7% since the start of the year compared to the 5.7% move for the Zacks Retail-Wholesale sector and the 7.1% return for the Zacks Retail - Discount Stores industry.

What's Driving the Outperformance?

The stock has an impressive record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on December 14, 2023, Costco reported EPS of $3.48 versus consensus estimate of $3.45 while it beat the consensus revenue estimate by 0.22%.

For the current fiscal year, Costco is expected to post earnings of $15.65 per share on $253.56 billion in revenues. This represents a 6.54% change in EPS on a 4.65% change in revenues. For the next fiscal year, the company is expected to earn $17.14 per share on $271.65 billion in revenues. This represents a year-over-year change of 9.53% and 7.13%, respectively.

Valuation Metrics

Costco may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.

On this front, we can look at the Zacks Style Scores, as these give investors a variety of ways to comb through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. Investors should consider the style scores a valuable tool that can help you to pick the most appropriate Zacks Rank stocks based on their individual investment style.

Costco has a Value Score of C. The stock's Growth and Momentum Scores are A and C, respectively, giving the company a VGM Score of A.

In terms of its value breakdown, the stock currently trades at 46.3X current fiscal year EPS estimates, which is a premium to the peer industry average of 22.2X. On a trailing cash flow basis, the stock currently trades at 37.3X versus its peer group's average of 18.2X. Additionally, the stock has a PEG ratio of 5.11. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.

Zacks Rank

We also need to look at the Zacks Rank for the stock, as this supersedes any trend on the style score front. Fortunately, Costco currently has a Zacks Rank of #2 (Buy) thanks to favorable earnings estimate revisions from covering analysts.

Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Costco passes the test. Thus, it seems as though Costco shares could have a bit more room to run in the near term.

How Does COST Stack Up to the Competition?

Shares of COST have been soaring, and the company still appears to be a decent choice, but what about the rest of the industry? One industry peer that looks good is Target Corporation (TGT - Free Report) . TGT has a Zacks Rank of # 2 (Buy) and a Value Score of A, a Growth Score of C, and a Momentum Score of D.

Earnings were strong last quarter. Target Corporation beat our consensus estimate by 41.89%, and for the current fiscal year, TGT is expected to post earnings of $9.13 per share on revenue of $107.36 billion.

Shares of Target Corporation have gained 8.3% over the past month, and currently trade at a forward P/E of 16.38X and a P/CF of 12.53X.

The Retail - Discount Stores industry is in the top 34% of all the industries we have in our universe, so it looks like there are some nice tailwinds for COST and TGT, even beyond their own solid fundamental situation.

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