Will quarterly earnings boost Costco’s share price?

In the past month, Costco’s [COST] share price has surged, setting a new all-time intraday high of $393.15 on 30 November, before closing at $381.77, up 34.4% year-to-date and 40.1% since its March slump. Costco’s share price has since slipped from this high to close at $377.60 on 8 December, although this still left it up just shy of 33% for the year. Will the wholesaler’s earnings report, due on 10 December, help Costco’s share price?

Costco’s share price was showing signs of instability at the beginning of 2020, but began to steady in early July and has since gone on to reach record highs. Before the market took a turn for the worst in March, Costco’s share price peaked at $313.81 on 20 February, up 10.5% year-to-date. This was the highest close in the stock’s history at the time. 

However, the value didn’t stick and, a week later, Costco’s share price fell to an intraday low of $271.28, before closing at $272.23 on 28 February. Although the stock quickly recovered most of its lost value, closing at $310.57 on 4 March, this was just the beginning of a volatile month for Costco’s share price and the wider market.

How has Costco been performing?

When Costco announced its fourth-quarter earnings for the fiscal year 2020 on 24 September, it posted EPS of $3.13, beating the Zacks Equity Research consensus estimate of $2.85 by 9.8% and gaining 16.4% on earnings of $2.69 per share reported for the year ago quarter. This marked the third earnings beat in four quarters. 

Meanwhile, for the 16-week quarter ended August, total revenues came in at $53.38bn, surpassing analyst expectations by 2.2% and marking 12.4% growth from the same period a year prior, when Costco reported revenue of $47.50bn. Of the last four quarters, this was the second time Costco surpassed analyst estimates.

Despite the positive report, Costco’s share price fell 2.5% during after-market trading on the day results were released. Zacks speculated that the drop may have been down to concerns from investors over the “high incremental expenses related to COVID-19”. 

Looking ahead to the upcoming report, Costco is expected to announce earnings of $2 per share, which would represent a 15.6% growth from last year. In addition, revenues are expected to reach $42.43bn, up 14.6% from the year-ago period. 

For the full year, the Zacks consensus estimate is calling for earnings of $9.75 per share and revenues of $183.35bn. Such results would mark respective year-over-year growths of 10.2% and 9.95%.

Costco recently reported its November net sales, which totalled $15.67bn, up 15.1% from $13.62bn, compared to last November’s growth of 5.3%. This beat the estimate from Joseph Feldman, analyst at Telsey Advisory Group, who expected total comparable sales to have increased by 12.5%.

“Overall, we expect another strong monthly sales report, highlighting high member loyalty, the focus on value, and improvement in digital,” Feldman wrote in a note seen by Barron’s.

"Overall, we expect another strong monthly sales report, highlighting high member loyalty, the focus on value, and improvement in digital" - Joseph Feldman, Telsey Advisory Group analyst

Before November sales were released, Feldman reiterated his Outperform rating and raised his target for Costco’s share price to $430 from $390.

What the analysts think

Feldman isn’t the only analyst with a bullish target on Costco. Laura Champine, analyst with Loop Capital, raised her target to $425 from $415 (with a Buy rating) and Paul Trussell, analyst at Deutsche Bank, raised his from $310 to $328 (while maintaining a Hold rating), as reported by The Fly. 

Champine isn’t the only bull covering Costco’s stock, as her outlook is in line with the wider opinion held among the 34 analysts polled by CNN Money, whose consensus rating is Buy. This comes from a majority of 18, while 11 rate the stock a Hold, three an Outperform and two an Underperform. Meanwhile, Zacks has given the stock a consensus Hold rating.

Among 29 analysts offering 12-month forecasts on Costco’s share price, CNN Money reports a median target of $395, with a high estimate of $435 and a low of $235. The median estimate would represent a 4.6% increase from Costco’s share price as of close on 8 December.

Costco's share price vitals, Yahoo Finance, 9 December 2020