Costco Wholesale Corp
Costco Wholesale Corp
IBD Stock Analysis
- Costco rebounds from 10-week line, clearing 21-day and trend line post-earnings
- Has a tight pattern with a 469.87 entry
- Relative strength line right at 2021 highs
Industry Group Ranking
* Not real-time data. All data shown was captured at
11:48AM EDT on
Membership warehouse retail chain Costco Wholesale (COST) is the IBD Stock of the Day. Costco stock continued to rebound from a key support level Friday following strong earnings, offering an opportunity for investors to buy.
Costco on Thursday reported fiscal fourth-quarter earnings after the close that beat expectations. The results came amid signs that it has held onto customers it drew last year during the height of coronavirus lockdown fears. But more recently, rising transportation and food costs have threatened margins.
Shares climbed 3.3% to 467.75 in the stock market today, rebounding from its 10-week line in double normal volume. Additionally, Costco stock reclaimed its 21-day line and broke a short trend line, offering additional buy signals. Investors could buy the stock now, according to IBD’s research.
COST stock is also in a three-weeks-tight pattern with a 469.87 buy point, according to MarketSmith analysis.
After it hit record highs earlier this month, Costco stock eased. But then it found support at its 10-week line on Monday. That was the first 10-week test for COST stock since a late-June breakout.
Meanwhile, shares have a strong 90 Composite Rating. Costco stock has an EPS Rating of 87. The stock was added to SwingTrader on Friday.
Costco’s earnings rose 7% vs. a year earlier to $3.90 a share adjusted, above estimates for $3.58. Revenue including membership fees rose 17% to $62.675 billion. That beat estimates for $61.4 billion.
Same-store sales grew 15.5%, above FactSet estimates for a 12.4% gain. Those figures included the impacts from gas-price and foreign-exchange fluctuations.
Analysts remained generally upbeat about Costco following its earnings, even if some saw limited room to run for the stock price.
Costco stock analysts at BofA Global Research, in a research note on Friday, said “sales and member growth should help mitigate inflation pressures” in the company’s fiscal 2022. And they noted that the company plans to open 25 warehouses over that time.
Oppenheimer analysts said that lower spending and higher income from memberships “fueled an upside surprise.”
“We continue to see favorable catalysts in the coming quarters, including a potential membership hike and special dividend,” Oppenheimer said. “Nearer-term, we expect more rangebound trade following the strong gains and uncertainty on the margin front.”
Visits to Costco through June, July and August rose when compared to 2019, according to Placer.ai, a foot-traffic analytics firm. They rose for rival wholesale clubs BJ’s and Sam’s Club as well.
‘Incredible Surge’ In Customer Visits
“The incredible surge in visits is a strong sign that (Costco) not only succeeded in having relative strength during the pandemic, but turned that short term strength into a foundation for long term success,” Ethan Chernofsky, the firm’s VP of marketing, wrote in a blog post this month.
Early last year, customers stormed Costco and other big grocery outlets to load up on food and other items, fearing a long period of coronavirus-related quarantine. Costco ended fiscal 2020 with a net sales increase of 9%. Same-store sales rose 8% over that time.
For its third quarter, Costco reported a same-store sales jump of 15%, excluding the effects of gas prices and foreign exchange. That figure rose 12.9% in the second quarter.
Costs Pose Challenge To Costco Stock
As with many other businesses, Costco is also operating in an environment where employers are starting to pay more to attract workers, as many prospective workers stay on the sidelines, helped by unemployment and stimulus cash, to weigh their career options.
Elsewhere, a supply chain left disjointed by the pandemic has pushed transportation and grocery costs higher. Ocean freight remains backed up on the major shipping lanes between the U.S. and Asia. Warehouses are packed. Truckers are harder to find.
Costco’s rivals have also noted those challenges. Robert Eddy, CEO of BJ’s Wholesale, said at a conference this month that the company was seeing supply disruptions in “many, many categories.”
“Think about categories like seasonal goods like patio sets that are made in China and shipped over here on a boat,” he said. “Think about the electronics businesses that might be assembled in the U.S. or at least in North America but many of the components come over from Asia. You’re seeing TVs and computers and things beyond allocation.”
“That stuff persists for a while I think,” Eddy said.
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