Earnings Beat In The Cards For Costco’s Stock?

Costco (NASDAQ: COST) is scheduled to report its fiscal second-quarter results on Thursday, March 3. We expect COST to likely beat the revenue and earnings expectations, driven by growth in comparable sales. The warehouse club operator has been firing on all cylinders during the challenges of the pandemic. In fact, the company’s sales grew 17% in the first quarter of fiscal 2022 – despite tough comparisons from the prior year when consumers had fewer options to spend their money. This was largely due to a jump in inflation and a short-term surge in retail spending. The company reports monthly revenues, and in January as well, it continued to post strong results. The retailer saw its sales increasing 15.5% year-over-year (y-o-y) and comps growing 14% in January. It is worth mentioning that the company’s sales rose 8% in January 2020,  just before the pandemic. All this suggests that the company should be able to sustain this growth momentum going forward, as well.

Our forecast indicates that Costco’s valuation is $584 a share, which is 12% higher than the current market price. Look at our interactive dashboard analysis on Costco‘s Earnings Preview: What To Expect in Fiscal Q2? for more details.

(1) Revenues expected to be ahead of consensus estimates

Trefis estimates COST’s FQ2 2022 revenues to be $53.7 Bil, 5% higher than the consensus estimate. Costco reported a comparable sales rise of 9.8% in FQ1 after stripping out the impact of gas prices and foreign exchange. That mark topped the consensus estimate of +8.3%.  To break it down further, comparable sales were up 9.9% in the U.S. and were 10.9% higher in other international markets other than Canada. These numbers suggest a highly engaged consumer base that is choosing to spend more of its money at Costco. Also, e-commerce sales increased 10% during the quarter. To add to this, the retailer opened eight net new stores in the first quarter, with plans for another 19 for the rest of the year. It also recently opened its second warehouse in both France and China, and global expansion gives it an enormous long-term growth path. For the full-year 2022, we expect Costco’s Revenues to grow 10% y-o-y to $216 billion.

2) EPS likely to be ahead of consensus estimates

(3) Stock price estimate higher than the current market price

Going by our Costco’s valuation, with an EPS estimate of around $12.54 and P/E multiple of 46.6x in fiscal 2022, this translates into a price of $584, which is 12% higher than the current market price.