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Costco (COST) Gains But Lags Market: What You Should Know

Zacks Equity Research

Costco (COST) closed at $303.03 in the latest trading session, marking a +0.73% move from the prior day. This change lagged the S&P 500's 0.84% gain on the day. At the same time, the Dow added 0.92%, and the tech-heavy Nasdaq gained 1.06%.

Heading into today, shares of the warehouse club operator had gained 3.07% over the past month, lagging the Retail-Wholesale sector's gain of 3.8% and the S&P 500's gain of 3.95% in that time.

COST will be looking to display strength as it nears its next earnings release, which is expected to be March 5, 2020. On that day, COST is projected to report earnings of $2.05 per share, which would represent year-over-year growth of 1.99%. Our most recent consensus estimate is calling for quarterly revenue of $38.27 billion, up 8.12% from the year-ago period.

For the full year, our Zacks Consensus Estimates are projecting earnings of $8.59 per share and revenue of $162.79 billion, which would represent changes of +4.88% and +6.61%, respectively, from the prior year.

It is also important to note the recent changes to analyst estimates for COST. Recent revisions tend to reflect the latest near-term business trends. As such, positive estimate revisions reflect analyst optimism about the company's business and profitability.

Based on our research, we believe these estimate revisions are directly related to near-team stock moves. Investors can capitalize on this by using the Zacks Rank. This model considers these estimate changes and provides a simple, actionable rating system.

The Zacks Rank system, which ranges from #1 (Strong Buy) to #5 (Strong Sell), has an impressive outside-audited track record of outperformance, with #1 stocks generating an average annual return of +25% since 1988. Within the past 30 days, our consensus EPS projection has moved 0.1% higher. COST currently has a Zacks Rank of #2 (Buy).

Digging into valuation, COST currently has a Forward P/E ratio of 35.03. This represents a premium compared to its industry's average Forward P/E of 23.51.

We can also see that COST currently has a PEG ratio of 4.32. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. The Retail - Discount Stores was holding an average PEG ratio of 2.15 at yesterday's closing price.

The Retail - Discount Stores industry is part of the Retail-Wholesale sector. This group has a Zacks Industry Rank of 40, putting it in the top 16% of all 250+ industries.

The Zacks Industry Rank includes is listed in order from best to worst in terms of the average Zacks Rank of the individual companies within each of these sectors. Our research shows that the top 50% rated industries outperform the bottom half by a factor of 2 to 1.

To follow COST in the coming trading sessions, be sure to utilize Zacks.com.


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