Guggenheim Partners: 'Street's Expectations Are Too High From Costco For The Next Two Or Three Quarters'

Costco Wholesale Corporation COST reported its latest quarterly results on Wednesday post the closing bell. Net sales for the company increased 1 percent year-over-year to $25.52 billion from $25.23 billion, while diluted EPS for the quarter came at $1.17, compared to $1.07 the company reported for the same quarter last year.

John Heinbockel, Guggenheim Partners, was on CNBC Thursday to weigh in on Costco’s results.

The Two Issues

“We have been cautious for a while and, I think, there are two issues,” Heinbockel said. “Number one, I think, Street’s expectations are too high for the next two or three quarters. Company doesn’t guide and there’s lot of moving parts in their P&L, FX, guest profitability. I think, forecasting guest profitability is very difficult and that’s very volatile and we are going to cycle some unusual guest profits in the next couple of quarters.”

He continued, “So, I think, we thought that they are going to miss at least a couple of the next few quarters, say the next 2 or 3. You combine that with an above average valuation level. So, this is trading a multiple point or two above where it historically has. That’s really not a good formula for outperformance.”

The Gas Business

Heinbockel was asked how important the gas business is for Costco and the impact it has on the company’s P&L. He replied, “It’s less important a percent of sales, right? Because it’s profitable business, but it’s not very profitable, but it really can drive in certain quarters the P&L.