Market Overview

Costco Wholesale Earnings Preview: Strong EPS, Sales Growth Expected

Costco Wholesale Earnings Preview: Strong EPS, Sales Growth Expected

Costco (NYSE: COST), which Barron's picked this week as a defensive play in a period of overestimated corporate earnings, is scheduled to report its fourth-quarter and full-year fiscal 2012 results Wednesday, October 10 before the market open. Investors will be looking to see whether the retailer can keep up its momentum now that gasoline prices have pulled back.

Expectations

Analysts on average predict that Costco will report per-share earnings of $1.31 for the quarter, as well as about $31.69 billion in revenue. That would be up from the same period of last year, when the company reported a profit of $1.08 per share and $28.18 billion in revenue. EPS estimates range from $1.25 per share to $1.37 per share. Costco offered upside surprises on EPS in the previous two quarters, but went five quarters without one before then.

The narrowly better-than-expected earnings and sales in the third quarter were attributed to rising fuel prices and expanded margins. Costco's share price advanced more than two percent following the report.

The full year forecast has EPS almost 15 percent higher year-over-year to $3.87 and revenues up more than 10 percent to $98.54 billion. That EPS estimate is unchanged from 60 days ago.

The Company

Costco Wholesale operates more than 600 membership warehouses that offer a selection of branded and private label products in a range of merchandise categories in no-frills, self-service warehouse facilities. It is an S&P 500 component with a market capitalization of about $43.8 billion. It was founded in 1964, is headquartered in Issaquah, Washington, and Craig Jelinek has been the chief executive since the beginning of 2012.

Competitors include privately held B.J.'s Wholesale Club and Wal-Mart (NYSE: WMT), which operates the Sam's Club chain. In the most recent quarter, Wal-Mart narrowly exceeded consensus EPS estimates but fell short on revenue, despite strong same-store sales at Sam's Club. In the current quarter, Wal-Mart's EPS are expected to be about nine percent higher and revenues to rise about four percent from the same period of last year.

During the three months that ended in August, Costco reported strong same-store sales, launched a new mobile app, mulled expansion into Europe and said it would buy the remaining stake in its joint venture in Mexico.

Performance

Costco's long-term EPS growth forecast is more than 13 percent. But the price-to-earnings (P/E) ratio is higher than the industry average. It has a return on equity of about 13 percent and a dividend yield of near one percent. Short interest is less than two percent of the float. Thirteen of 26 analysts surveyed by Thomson/First Call who follow the stock recommend buying shares. The current share price has outrun their mean price target, a sign of where analysts expect the share price to go. A positive surprise and/or strong guidance could prompt increased price targets.

The stock has pulled back from a recent multiyear high. The share price is about eight percent higher than 90 days ago and above the 200-day and 50-day moving averages since June. Over the past six months, the stock has outperformed the broader markets but underperformed Wal-Mart.

Posted-In: B.J.'s Wholesale CostcoEarnings Long Ideas News Short Ideas Previews Trading Ideas Best of Benzinga

 

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