Costco Q3 Earnings Preview: Strong Fundamentals with Limited Upside
Written by Emily J. Thompson, Senior Investment Analyst
Updated: 20 hours ago
0mins
Source: seekingalpha
- Earnings Beat: Costco reported a GAAP EPS of $4.93 for Q3, surpassing expectations by $0.01, which reflects the company's ability to maintain strong profitability in a robust market environment, despite high growth expectations.
- Significant Revenue Growth: The company achieved revenues of $70.53 billion in Q3, exceeding market expectations by $890 million, indicating Costco's capability to deliver solid sales growth even in a competitive retail landscape, thereby boosting investor confidence in its long-term prospects.
- Market Performance Analysis: Although Costco's sales performance outpaced that of its big-box peers, analysts generally maintain a “hold” rating on the stock due to the high expectations for future growth, reflecting a cautious outlook on short-term price appreciation at current levels.
- Growth Potential Assessment: Supported by strong fundamentals, Costco's growth premium remains, but analysts caution that current market valuations may limit short-term upside, prompting investors to monitor future earnings guidance for optimal investment timing.
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Analyst Views on COST
Wall Street analysts forecast COST stock price to rise
24 Analyst Rating
19 Buy
4 Hold
1 Sell
Strong Buy
Current: 995.200
Low
769.00
Averages
1061
High
1205
Current: 995.200
Low
769.00
Averages
1061
High
1205
About COST
Costco Wholesale Corporation (Costco) operates membership warehouses and e-commerce sites that offer a selection of nationally branded and private-label products in a wide range of categories. The Company buys the majority of its merchandise directly from suppliers and route it to cross-docking consolidation points (depots) or directly to its warehouses. It operates 891 warehouses, including 614 in the United States and Puerto Rico, 108 in Canada, 40 in Mexico, 35 in Japan, 29 in the United Kingdom, 19 in Korea, 15 in Australia, 14 in Taiwan, seven in China, five in Spain, two in France, and one each in Iceland, New Zealand and Sweden. It also operates e-commerce sites in the United States, Canada, the United Kingdom, Mexico, Korea, Taiwan, Japan and Australia. The Company provides wide selection of merchandise, plus the convenience of specialty departments and exclusive member services.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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- Record Fuel Sales: Costco achieved record fuel sales volumes in Q3, with all three four-week fiscal periods setting new all-time company sales records, indicating strong consumer demand for lower gas prices amid high oil costs.
- Increased Member Loyalty: The high price sensitivity led many members to use Costco's gas stations for the first time in Q3, which not only boosted sales but is expected to enhance member loyalty in the future.
- Sales Growth Exceeds Expectations: Costco reported a Q3 comparable sales growth of 9.8%, significantly above the consensus estimate of 7.8%, with gas price inflation contributing approximately 2.2% to this growth.
- Competitive Pricing Advantage: By widening price gaps, Costco ensures attractive pricing for members, reflecting the increased share of gas spending in total member expenditures due to rising prices, thereby reinforcing its market position.
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- Membership Growth Slowdown: Truist highlighted Costco's slowing membership growth, noting that while renewal rates stabilized at 89.7% globally and 92.2% in the U.S./Canada, new member additions of 800,000 fell short of the long-term average of 1.1 million, indicating potential market pressures.
- Stable Sales Performance: Despite the slowdown in membership growth, Costco continues to deliver mid-single digit comparable sales growth at a $300 billion annualized run rate, demonstrating resilience and sustained appeal in the retail market.
- Analyst Rating Changes: BofA raised Costco's price target from $1,185 to $1,200 while maintaining a 'Buy' rating, whereas Roth Capital increased its target from $769 to $781 but kept a 'Sell' rating, reflecting divergent market views on the company's future performance.
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- Digital Sales Surge: Digital sales increased by 21.5%, indicating that Costco's investments in e-commerce are yielding returns, with CEO noting that gas customers tend to spend more than average, enhancing overall performance.
- Stock Price Decline: Despite solid results, shares fell by 4.6% due to high market expectations regarding the company's valuation, reflecting investor caution about future growth, especially with a current P/E ratio of 49.
- Long-Term Outlook: While short-term stock fluctuations are expected, analysts have generally raised their price targets, indicating confidence in Costco's long-term growth potential, although valuation pressures are likely to persist.
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- Strong Performance: Costco's Q3 report indicates robust sales and earnings growth, with specific figures not disclosed, yet this trend is consistent across all geographies, showcasing the company's solid performance in global markets.
- Stock Price Decline: Despite strong results, Costco's shares experienced a significant drop, potentially reflecting market concerns about future growth or a reassessment of current valuations, which could undermine investor confidence.
- Consistent Geographic Performance: The company's sales and earnings growth is consistent across different regions, demonstrating the effectiveness of its business model and the universality of market demand, which helps enhance the brand's global influence.
- Uncertain Market Outlook: While current performance is strong, market uncertainties regarding the future economic environment may lead investors to adopt a cautious stance on Costco's future performance, thereby impacting stock price movements.
See More
Costco Reports Record Fuel Sales Amid High Oil Prices
- Record Fuel Sales: Costco achieved record fuel sales volumes in Q3, with all three four-week fiscal periods setting new all-time company sales records, indicating strong consumer demand for lower gas prices amid high oil costs.
- Increased Member Loyalty: The high price sensitivity led many members to use Costco's gas stations for the first time in Q3, which not only boosted sales but is expected to enhance member loyalty in the future.
- Sales Growth Exceeds Expectations: Costco reported a Q3 comparable sales growth of 9.8%, significantly above the consensus estimate of 7.8%, with gas price inflation contributing approximately 2.2% to this growth.
- Competitive Pricing Advantage: By widening price gaps, Costco ensures attractive pricing for members, reflecting the increased share of gas spending in total member expenditures due to rising prices, thereby reinforcing its market position.
See More
Costco's Membership Growth Slows Amid Strong Sales
- Membership Growth Slowdown: Truist highlighted Costco's slowing membership growth, noting that while renewal rates stabilized at 89.7% globally and 92.2% in the U.S./Canada, new member additions of 800,000 fell short of the long-term average of 1.1 million, indicating potential market pressures.
- Stable Sales Performance: Despite the slowdown in membership growth, Costco continues to deliver mid-single digit comparable sales growth at a $300 billion annualized run rate, demonstrating resilience and sustained appeal in the retail market.
- Analyst Rating Changes: BofA raised Costco's price target from $1,185 to $1,200 while maintaining a 'Buy' rating, whereas Roth Capital increased its target from $769 to $781 but kept a 'Sell' rating, reflecting divergent market views on the company's future performance.
- Earnings Report Analysis: Costco reported third-quarter revenue of $69.15 billion, narrowly missing analysts' expectations of $69.2 billion, while earnings per share of $4.9 were in line with expectations, showcasing the company's stability in the face of challenges.
See More
Costco's Q3 Earnings Beat Expectations but Shares Decline
- Earnings Beat: Costco's comparable sales grew by 6.6% in Q3, with total revenue rising 11.6% to $70.53 billion, surpassing expectations of $69.81 billion, showcasing the company's strong performance amid economic pressures.
- Digital Sales Surge: Digital sales increased by 21.5%, indicating that Costco's investments in e-commerce are yielding returns, with CEO noting that gas customers tend to spend more than average, enhancing overall performance.
- Stock Price Decline: Despite solid results, shares fell by 4.6% due to high market expectations regarding the company's valuation, reflecting investor caution about future growth, especially with a current P/E ratio of 49.
- Long-Term Outlook: While short-term stock fluctuations are expected, analysts have generally raised their price targets, indicating confidence in Costco's long-term growth potential, although valuation pressures are likely to persist.
See More
US Stock Indices Reach All-Time Highs Amid Positive Economic Signals
- Market Surge: The S&P 500 rose by 0.21%, the Dow Jones Industrial Average increased by 0.65%, and the Nasdaq 100 climbed by 0.25%, with all three indices reaching new all-time highs, reflecting strong market confidence in economic recovery.
- Tech Stocks Rally: Dell Technologies surged over 31% after reporting Q1 total revenue of $43.84 billion, significantly exceeding the consensus estimate of $35.52 billion, and raised its 2027 revenue forecast to $165 billion to $169 billion, indicating robust demand for AI infrastructure.
- Positive Economic Indicators: The May MNI Chicago PMI jumped 13.5 to 62.7, well above the expected 50.3, marking the strongest expansion pace in 4.25 years, which supports the bullish sentiment in the stock market.
- Oil Price Decline: Crude oil prices fell more than 1% to a five-week low as the US and Iran tentatively agreed to extend a ceasefire, easing inflation concerns and fostering optimism about the economic outlook.
See More
Costco Membership Growth Weakens, Stock Drops
- Costco Stock Decline: Costco's shares fell 4.5% on Friday due to weaker-than-expected membership growth in its quarterly report, leading to investor concerns about the company's growth trajectory, with Jim noting management's failure to reassure the market.
- Dell Stock Surge: Dell Technologies' stock surged 30% on Friday, marking its best single-day performance ever, driven by strong demand for AI servers and data center infrastructure, which also bolstered Jim's bullish outlook on Nvidia.
- Cybersecurity Earnings Outlook: CrowdStrike and Palo Alto Networks are set to report earnings next week, with Jim highlighting that both stocks have rallied significantly during the quarter, although they face challenges heading into earnings, he remains optimistic about their long-term prospects.
- Rapid Fire Recap: At the end of the video, Jim covered stocks like Applied Materials, Honeywell, and FedEx, emphasizing their market performance and showcasing his focus on a diversified investment portfolio.
See More
Costco Reports Strong Q3 Results but Shares Plummet
- Strong Performance: Costco's Q3 report indicates robust sales and earnings growth, with specific figures not disclosed, yet this trend is consistent across all geographies, showcasing the company's solid performance in global markets.
- Stock Price Decline: Despite strong results, Costco's shares experienced a significant drop, potentially reflecting market concerns about future growth or a reassessment of current valuations, which could undermine investor confidence.
- Consistent Geographic Performance: The company's sales and earnings growth is consistent across different regions, demonstrating the effectiveness of its business model and the universality of market demand, which helps enhance the brand's global influence.
- Uncertain Market Outlook: While current performance is strong, market uncertainties regarding the future economic environment may lead investors to adopt a cautious stance on Costco's future performance, thereby impacting stock price movements.
See More
