Shares of Costco (NASDAQ:COST) have kept pace with Walmart (NYSE:WMT) and Target (NYSE:TGT) over the past 12 months. The big-box discount giant has also crushed its rivals over the last five years, as all three prove they are ready to fight off Amazon’s (NASDAQ:AMZN) encroachment.
Now, with Costco set to report its fourth-quarter fiscal 2019 financial results on October 3, let’s dive into COST stock.
Retail & Costco Overview
It might seem trite to talk about e-commerce and digital expansion and the need to roll out more delivery offerings. But the fact that these buzzwords seem overused at this point doesn’t mean they don’t drive the retail industry, or at least stock price momentum.
Walmart and Target both blew away investors this quarter, with TGT up from roughly $85 to $103 per share in one day. Both retailers showed that their digital, delivery, and pick-up initiatives have paid off. Plus, WMT and Target’s in-store traffic have remained strong, which is a good thing because e-commerce sales in the first quarter of 2019 accounted for just 10.2% of total retail sales, according to Census Department data.
Costco, like its peers, now boasts multiple digital and delivery offerings. Costco has expanded its same-day delivery service to “most” metropolitan areas through its Instacart partnership. Meanwhile, the Issaquah, Washington-based retailer currently offers free two-day delivery for non-perishable food and household supplies to customers nationwide on orders of $75 or more, with a fee charged for smaller orders. The company also makes money from its membership fees.
As we alluded to at the top, COST stock has soared roughly 130% over the last five years, which comes in well above its industry’s 96% average—which is boosted by AMZN’s inclusion—TGT’s 70% and WMT’s 53%. Shares of Costco have also surged 77% in the past two years and 23% over the past 12 months, compared to its industry’s 6% decline.
Costco stock closed regular trading Thursday down 1.57% at $287.83 per share. This marked a roughly 6% downturn compared to its 52-week highs of just over $307. But along with this climb has come a somewhat stretched valuation picture.
Shares of Costco are currently trading at 34.3X forward 12-month Zacks earnings estimates. This falls just below its recent highs of 36.9X but marks a huge premium against its own 27.5X three-year median and 23.6X low.
Target stock is currently trading at 16.9X, with Walmart at 23.2X. The chart below also shows how bloated Costco’s valuation appears compared to its industry’s average and its own history.
Outlook & Earnings Trends
Moving on, Costco is one of a few remaining retailers that still reports its monthly sales. Therefore, heading into its report we have a great idea of what to expect. On September 5, the firm reported its August and 16-week fourth quarter sales figures.
The company’s Q4 sales jumped 7% from $43.41 billion in the year-ago period to $46.45 billion. Meanwhile, COST said its total 52-week sales climbed roughly 8% to $149.35 billion. Last year, the firm’s sales jumped 9.7%.
On top of that, total 2019 comparable sales popped 6.1%, with e-commerce up 23%. Investors should note that both of these mark slowdowns from 2018’s 9.5% comps expansion and 32.2% e-commerce growth.
Moving on, our current Zacks Consensus Estimate calls for Costco’s adjusted quarterly earnings to jump 7.6%. The company’s full-year earnings are projected to jump 17.8%, with fiscal 2020 projected to come in 5.7% higher. COST has seen its Q4 earnings estimate revision picture trend heavily in the right direction recently, but its longer-term movement has been more mixed.
It seems like COST stock could be headed for a pullback based on its valuation, as some investors decide to take home serious profits. Costco is currently a Zacks Rank #3 (Hold) that holds “D” grades for both Value and Momentum in our Style Scores system.
Costco is scheduled to release its Q4 fiscal 2019 financial results on October 3.
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