Earnings Beat In The Cards For Costco’s Stock?

COST: Costco logo

Costco (NASDAQ: COST) is scheduled to report its fiscal second-quarter results on Thursday, March 3. We expect COST to likely beat the revenue and earnings expectations, driven by growth in comparable sales. The warehouse club operator has been firing on all cylinders during the challenges of the pandemic. In fact, the company’s sales grew 17% in the first quarter of fiscal 2022 – despite tough comparisons from the prior year when consumers had fewer options to spend their money. This was largely due to a jump in inflation and a short-term surge in retail spending. The company reports monthly revenues, and in January as well, it continued to post strong results. The retailer saw its sales increasing 15.5% year-over-year (y-o-y) and comps growing 14% in January. It is worth mentioning that the company’s sales rose 8% in January 2020,  just before the pandemic. All this suggests that the company should be able to sustain this growth momentum going forward, as well.

Our forecast indicates that Costco’s valuation is $584 a share, which is 12% higher than the current market price. Look at our interactive dashboard analysis on Costco‘s Earnings Preview: What To Expect in Fiscal Q2? for more details.

(1) Revenues expected to be ahead of consensus estimates

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Trefis estimates COST’s FQ2 2022 revenues to be $53.7 Bil, 5% higher than the consensus estimate. Costco reported a comparable sales rise of 9.8% in FQ1 after stripping out the impact of gas prices and foreign exchange. That mark topped the consensus estimate of +8.3%.  To break it down further, comparable sales were up 9.9% in the U.S. and were 10.9% higher in other international markets other than Canada. These numbers suggest a highly engaged consumer base that is choosing to spend more of its money at Costco. Also, e-commerce sales increased 10% during the quarter. To add to this, the retailer opened eight net new stores in the first quarter, with plans for another 19 for the rest of the year. It also recently opened its second warehouse in both France and China, and global expansion gives it an enormous long-term growth path. For the full-year 2022, we expect Costco’s Revenues to grow 10% y-o-y to $216 billion.

2) EPS likely to be ahead of consensus estimates

COST’s FQ2 2022 earnings per share (EPS) is expected to be $2.82 per Trefis analysis, 3% ahead of the consensus estimate. In the first quarter, earnings increased to $2.98 per share from $2.62 last year. Membership fees play a large role here, and they increased 10% y-o-y to $946 million in the first quarter, with an 89% global renewal rate. It should be noted that membership fee income flows almost entirely to the bottom line as there are very few expenses associated with an incremental increase.

(3) Stock price estimate higher than the current market price

Going by our Costco’s valuation, with an EPS estimate of around $12.54 and P/E multiple of 46.6x in fiscal 2022, this translates into a price of $584, which is 12% higher than the current market price.

It is helpful to see how its peers stack up. COST Peers shows how Costco compares against its peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

Returns Mar 2022
MTD [1]
YTD [1]
Total [2]
 COST Return 1% -8% 227%
 S&P 500 Return -1% -10% 92%
 Trefis MS Portfolio Return 0% -11% 252%

[1] Month-to-date and year-to-date as of 3/2/2022
[2] Cumulative total returns since the end of 2016

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