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Should You Buy Costco (COST) Stock Ahead of Q4 Earnings?

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Costco (COST - Free Report) shares have climbed over 12% during the last three months as the big-box retail powerhouse continues to impress with its e-commerce push and strong overall sales growth. So, should investors consider buying Costco stock ahead of the firm’s Q4 earnings release Thursday?

Overview

Costco released its August sales results in early September. The retailer’s net sales jumped 12.2% hit $11.0 billion. Meanwhile, Costco posted net sales of $43.4 billion in its 16-week fiscal fourth-quarter, which marked a 5% jump from the year-ago period’s $41.4 billion—during a 17-week stretch.  

The discount retail firm’s full-year net sales popped 9.7% from $126.2 billion in its 53-week fiscal 2017 to reach $138.4 billion in its 52-week fiscal 2018. Investors should also note that Costco’s U.S. sales jumped 10.8% in the fourth quarter and 9.4% for the year. Plus, the company’s e-commerce sales surged 26.2% in Q4 and 32.2% in fiscal 2018.

Costco has boosted its e-commerce sales through a series of initiatives. The company now offers free two-day delivery for non-perishable food and household supplies to customers nationwide on orders of $75 or more—with a fee added onto smaller orders. The company also expanded its same-day delivery service to “most metropolitan” areas through an updated partnership with Instacart.

Costco’s e-commerce and delivery expansion will help it better compete against the likes of Target (TGT - Free Report) , Walmart (WMT - Free Report) , Kroger (KR - Free Report) , and others. It is also worth noting that Costco’s growth helps to show that big-box, brick-and-mortar retail can survive in the age of Amazon (AMZN - Free Report) (also read: 4-Star & Amazon's Physical Retail Push).

Price Movement and Valuation

Now let’s take a look at COST’s recent movement to help give investors a better sense of what is going on. Costco stock has lagged its industry over the last three years, up roughly 60% compared to its industry’s 91% climb. With that said, shares of COST have soared over 41% in the last 52 weeks, which tops its industry’s 36% and blows away the S&P 500’s 16%.

Shares of Costco have popped 26% since the start of the year, to outpace the S&P’s 9%. COST stock closed regular trading down marginally on Monday to $234.65 per share, which is less than $10 below its 52-week and all-time high of $245.16.

 

 

Moving on, COST is currently trading at 30.2X forward 12-month Zacks Consensus EPS estimates, which marks a premium compared to its industry’s 28.3X average. Costco stock is also trading above its year-long low of 23.7X and its one-year median of 27.3X. However, we can see that COST isn’t trading too far out of line to where it has over the past three years.

 

Outlook & Earnings Revisions

Costco’s fourth-quarter revenues are projected to jump by roughly 5% to $44.40 billion, based on our current Zacks Consensus Estimate. At the other end of the income statement, the firm’s adjusted fiscal fourth-quarter earnings are expected to jump by 12.50% to hit $2.34 per share. Meanwhile, Costco’s fiscal year earnings are projected to surge by 16.8%.    

The retailer has also earned six positive earnings estimate revisions for Q4 over the last 30 days, against zero downward changes. More importantly, Costco has received six full-year earnings revisions along with seven for fiscal 2019 during this same time, with nearly 100% agreement to the upside.

Bottom Line

Costco is currently a Zacks Rank #3 (Hold) and sports an “A” grade for Growth in our Style Scores system. Investors should note that Costco has topped our quarterly earnings estimates in four out of the last five periods. Therefore, COST might be worth considering ahead of the release of its Q4 financial results.

Costco is set to report its Q4 and full-year financial results after the closing bell on Thursday, October 4.

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