Costco has seen sales surge during the pandemic.
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Costco Wholesale will report fiscal second-quarter results on Thursday morning, in what could be a bright holiday performance.
Analysts expect Costco (COST) to deliver earnings per share of $2.75 on revenue of $51.4 billion.
Costco is one retailer that still provides monthly sales updates. And the pandemic winner has seen ongoing same-store sales strength in December and January, even if that didn’t always help the stock. The company’s previous quarter, reported at the end of 2021, was stronger than expected, even if Costco did warn that it could see supply chain-related toy shortages for the key Christmas season.
There are plenty of reasons why Costco remains an analyst favorite, with nearly two-thirds tracked by FactSet bullish on the shares. Being an essential retailer provided a boost in the early days of the pandemic, while Costco’s focus on low prices and breadth of merchandise appealed to consumers as the crisis dragged on. Membership growth climbed, while both in-person and online sales kept pace with ever-increasing estimates.
“Overall, we expect strong results, helped by high member loyalty, a focus on value, and improvement in digital,” writes Telsey Advisory Group’s Joseph Feldman,” who has an Outperform rating and $610 price target on the shares.
If Costco were to reach that level it would have basically doubled from its March 2020 low, which speaks to how well it’s performed throughout the pandemic. That’s clearly reflected in its multiple, at 38.5 times forward earnings, but the only thing seemingly as consistent as Costco’s execution is the premium that the stock commands. And while that’s above its five-year average of nearly 32 times, it has pulled back year to date.
“Valuation is elevated, but Costco’s status as a rare ‘mega cap’ growth staple remains firmly intact,” writes Baird analyst Peter Benedict, maintaining an Outperform rating and $600 target.
Foot traffic seems to show that Costco hasn’t slowed: Data from Placer.ai found that not only is the company holding its own in terms of market share against competitors like BJ’s Wholesale Club (BJ) and Walmart ’s ( WMT
) Sam’s Club, but that visits grew on a two-year (pre-pandemic) basis every month in 2021 and in January of this year.
Retailers now face difficult year-over-year comparisons—given that unlike in 2020 and 2021, consumers aren’t receiving government stimulus checks and have more entertainment options beyond shopping. Yet Costco might not have it as hard, argues BMO Capital Market’s Kelly Bania, as her research shows that it “benefited much less from consumer stimulus” than many other stores. She has an Outperform rating and $560 target on the stock.
Still, the market has shifted to give retailer forecasts more weight recently, given ongoing uncertainty about how pandemic winners maintain momentum as the virus slowly recedes. So Costco’s tone may be the biggest factor in terms of stock performance.
Write to Teresa Rivas at [email protected]
