Costco Stock Has Grown 2x S&P 500 So Far This Year: More Gains After Q4 Results?

-4.89%
Downside
894
Market
850
Trefis
COST: Costco Wholesale logo
COST
Costco Wholesale

Costco (NASDAQ: COST) is scheduled to report its fiscal fourth-quarter results on Thursday, September 5 (Costco’s fiscal year ends in August). We expect Costco stock to likely see little to no movement with revenues and earnings matching expectations in its fiscal fourth quarter. Costco’s stock has rallied 35% since the beginning of this year to $879, outperforming the S&P index which grew 18% during this period. In comparison, Costco’s peer Walmart’s (NYSE: WMT) stock has swelled almost 50% over the same period.

Costco has shown the ability to consistently grow revenues while focusing on improved customer experience – something that has helped the company thrive in the ever-changing retail landscape. Several club stores have been opened in the U.S. and the company is well-positioned for continued growth overseas, including in China.The stock looks expensive at these valuation levels – making further gains challenging.

Admirably, COST stock has outperformed the broader market in each of the last 3 years. Returns for the stock were 52% in 2021, -19% in 2022, and 49% in 2023. The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has also outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could COST see a strong jump?

Our forecast indicates that Costco’s valuation is $850 a share, which is in line with the current market price. Look at our interactive dashboard analysis on Costco‘s Earnings Preview: What To Expect in Fiscal Q4? for more details.

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  3. Does Costco Stock Have More Room For Gains After Rising 40% in 2023?
  4. What To Expect From Costco’s Stock Post Q4 Results?
  5. Costco’s Stock Up 23% So Far, What’s Next?
  6. What To Watch For In Costco’s Stock Post Q3?

(1) Revenues expected to be in line with consensus estimates

Trefis estimates COST’s FQ4 2024 revenues to be $80.4 Bil, in line with the consensus estimate. In its most recent Q3, the company’s revenues grew by 9% year-over-year (y-o-y) to around $59 billion, driven by a 6.5% increase in comparable sales (adjusted for gas prices and currency exchange), and 21% growth in eCommerce. The retailer ended the third quarter with 74.5 million paid household members, up 8% y-o-y. The renewal rate remained strong, at 93% in the U.S. and Canada, while the worldwide rate came in at 90.5%. This high renewal rate not only ensures a steady stream of revenue from membership fees but also increases the lifetime value of each customer, thereby boosting overall profitability. We need to monitor this metric when calculating Costco’s long-term growth potential. We forecast COST’s Revenues to be around $255 billion for the fiscal year 2024, up 5% y-o-y.

2) EPS likely to match consensus estimates 

COST’s FQ4 2024 earnings per share (EPS) is expected to be $5.07 per Trefis analysis, in line with the consensus estimate. In Q3, the company’s earnings per share was up 29% to $3.78. Costco’s profits soared as its gross margin improved 50 basis points to 10.8%, and its membership fees – which essentially go straight to the bottom line – rose by 8% to $1.1 billion. As a result, its operating income also jumped 31% to $2.2 billion. Also, Costco currently boasts nearly $11.5 billion in cash, cash equivalents, and short-term investments. Its long-term debt is only around $7 billion, so Costco has a net cash position on its balance sheet. 

(3) Stock price estimate almost in line with the current market price

Going by Costco’s valuation, with an EPS estimate of around $16.32 and a P/E multiple of 52.1x in fiscal 2024, this translates into a price of $850, which is aligned with the current market price.

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

 Returns Sep 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 COST Return -1% 34% 542%
 S&P 500 Return 0% 18% 152%
 Trefis Reinforced Value Portfolio -3% 9% 714%

[1] Returns as of 9/3/2024
[2] Cumulative total returns since the end of 2016

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