Wall Street will be keeping a close eye on Costco’s (COST) stock this week as the retail giant gears up to unveil its fiscal fourth-quarter earnings on Thursday, September 26.
Let’s delve into whether it may be a prudent time to consider investing in Costco’s stock as the earnings announcement approaches and how the bulk scale retailer measures up against key competitors like Walmart (WMT) and Amazon (AMZN).
Costco’s Q4 Expectations
Costco, in a bid to keep pace with the evolving retail landscape, has made significant strides in enhancing its digital footprint to compete with Amazon. Last quarter witnessed a robust 21% year-over-year surge in Costco’s e-commerce sales, with a projected 12% growth anticipated for Q4. Overall, analysts anticipate a 1% increase in Costco’s Q4 sales to $79.75 billion.
On the earnings front, Q4 EPS is forecasted to rise by 4% to $5.05. Impressively, Costco has continually outperformed the Zacks EPS Consensus for six consecutive quarters, boasting an average earnings surprise of 2.32% in its last four quarterly reports.
Costco’s Growth Trajectory
According to Zacks estimates, Costco’s total sales are on track to ascend by 5% in fiscal 2024, with a further projected 7% growth in FY25 to reach $273.26 billion. Annual earnings are expected to grow by 10% this year, with a forecasted 9% increase in FY25 to hit $17.65 per share.
Performance & Valuation Comparison
Costco’s shares have surged by an impressive 36% year-to-date, though trailing behind Walmart’s 53%, yet outperforming Amazon’s 27% and the S&P 500’s 20% growth rates. Notably, over the past three years, COST has witnessed an exceptional nearly 100% increase, significantly surpassing broader market indices, Amazon’s 14% climb, and even Walmart’s 70% upsurge.
However, at current levels just exceeding $900, COST is trading at a forward earnings multiple of 51.1X, notably higher than the benchmark’s 24.2X. Despite its prominent position in the retail sector, Costco’s stock commands a noticeable premium compared to Walmart and Amazon, which trade at 33.1X and 40.8X forward earnings, respectively.
Bottom Line
Following the substantial year-to-date rally, Costco’s stock currently holds a Zacks Rank of #3 (Hold). While Costco’s ongoing expansion efforts are enticing, discerning investors may find better buying opportunities based on the company’s valuation metrics. Nonetheless, COST remains a promising long-term investment, particularly if the company can meet or exceed its Q4 expectations.