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Can Costco Post Double-Digit Earnings Growth?

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Costco Wholesale Corporation (NASDAQ: COST) will report its third quarter financial results after the market closes on Wednesday and, according to Estimize, expectations point toward an 8 to 11 percent year-over-year earnings growth.

In the same quarter last year, the company posted earnings of $1.07 per share on revenue of $25.233 billion. This compares to earnings of $1.16 per share and revenue of $26.568 billion modeled by the Street for the current quarter, and to earnings of $1.19 per share on revenue of $26.865 billion projected by the crowd.

As it can be seen in the chart above, Costco, which had a long history of missing estimates, has managed to outperform expectations in the last three quarters.

The second chart, featured above, illustrates the evolution of sentiment over time. As it can be appreciated, the crowd’s consensus experienced some ups and downs but, ultimately, remained flat. However, the Street’s estimates experienced a moderate decline since January.

The Longer Term Looks More Promising

In a recent research note, analysts at Goldman Sachs reiterated a Neutral rating on Costco, trimming their price target from $155 to $154, after the company announced soft same-store sales for March/April in the U.S.

Despite the relative weakness in the March/April same-store sales (in relation to previous months), these were "still near the top-end of growth posted by most retailers, notably large ones," the analysts added. Moreover, this weakness was somewhat mitigated by reduced FX headwinds.

For the third quarter, the firm expects earnings of $1.15 per share. For fiscal 2016 and 2017, they model EPS of $5.50 and $6.10, respectively. The analysts think "earnings momentum has peaked for this gas cycle… food inflation is moderating, and sales trends in recent months ticked down slightly."

Posted-In: Estimize Goldman SachsAnalyst Color Previews Trading Ideas


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