Will Costco’s share price be lifted by impressive sales in Q4?

Costco’s [COST] share price was tied up in volatile markets for the first half of the year, but since the start of July, the stock has been racing to record highs.

Before the market downturn in March, Costco’s share price had climbed 10.4% to a year-to-date high of $322.65 on 20 February, which at the time was the highest close in the stock’s history.

However, a week later Costco’s share price fell to an intraday low of $271.28 before closing at $279.90 on 28 February. Although the stock was quick to recover most of its lost value, closing at $319.31 on 4 March, this was only the beginning of a volatile month for Costco’s share price.

As the COVID-19 pandemic spread, Costco’s share price fell as low as $276.34 before closing at $278.61 on 12 March, marking a 4.5% year-to-date drop and the stock’s worst day of trading in 2020.

Since then, however, Costco’s share price has soared 28.8% to reach a new all-time high of $359.92 on 2 September before closing at $358.86.

This did not last long, however, with Costco’s share price sliding 3.36% through the month to 20 September.

Will its upcoming earnings report, due on 24 September, help Costco’s share price?

Spacious stores

When discussing Costco’s third-quarter performance with analysts, Richard Galanti, CFO and executive vice president, credited Costco’s performance during the pandemic to the spacious layout of its stores.

In this report, Costco announced earnings of $1.89 per share, narrowly missing the Zacks Equity Research consensus estimate of $1.92 per share.

For the quarter ended 10 May, total revenues came in at $37.26bn, up 7.2% from the same period a year before. Despite the top-line growth, this also missed the Zacks’ consensus estimate of $37.53bn.

Looking ahead, Zacks analysts estimate Costco will post earnings of $2.85 per share, marking a year-over-year growth of just under 6%. Meanwhile, the publication expects revenues to reach $52.61bn — an increase of 10.76% from the same period in 2019.

A supermarket leader

Robert Ohmes, a Merrill Lynch analyst, was one of three analysts to reiterate a Buy rating on Costco’s share price in September, according to Barron’s. He raised his price target from $350 to $400 based on the company’s strong same-store sales.  

He credited “the continued impressive sales momentum and the continued positive same-store traffic comps in an environment marked by most retailers seeing significant traffic declines” when explaining his increased confidence in the stock.

Rupesh Parikh, an analyst at Oppenheimer, also reiterated an Outperform rating on the stock and raised his price target to $400, Barron’s reported. Although he did see signs of the “end of the grocery boom” that was brought on by the pandemic, following moderate sales growth in the groceries sector for the first time in months.

As a result, Parikh suggests investors choose grocery stocks wisely and stick with market-share winners, such as Costco, which is one of the best options in Parikh’s opinion.

“We continue to see a strong case for outperformance from here and the potential for a special dividend in 2021,” he stated.

“We continue to see a strong case for outperformance from here and the potential for a special dividend in 2021” - Rupesh Parikh, Oppenheimer analyst

Ohmes and Parikh’s bullish outlook for Costco stock is in line with the wider opinion held among the 34 analysts polled by CNN Money, whose consensus is to Buy.

This comes from a majority of 16, while 13 rate the stock a Hold, three an Outperform and two an Underperform. Zacks has a consensus Hold rating on the stock.

Among 29 analysts offering 12-month share price forecasts, CNN Money reports a median target of $363, with a high estimate of $410 and a low of $235. The median estimate would represent a 6.9% increase from Costco’s share price as of close on 22 September.

Costco share price vitals, Yahoo Finance, 22 September 2020