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Costco Pulls Back On Earnings; Top Analyst Sees Buying Opportunity

support@smarteranalyst.com (Ben Mahaney)
·2 min read

Warehouse retail chain Costco (COST) has reported mixed earning results with third-fiscal quarter revenue of $37.27B beating consensus expectations by $610M, and marking a 7.3% year-over-year gain. Meanwhile Adj. Comparable sales in the US rose 8% and E-Commerce sales exploded +64.5%.

However EPS of $1.89 fell short of a Street figure of $1.92 due to higher expenses of $283M or $0.47 per share, which the company was unable to overcome even with favorability in the fuel business. EPS was negatively impacted incremental wage and sanitation costs related to COVID-19.

As a result, shares pulled back 2% in after-hours trading on Thursday.

COST also revealed that it is now estimating a 1–2% negative impact from some of its businesses being closed/restricted (notably optical, hearing aids, photo, and eliminated food court offerings) during the quarter.

“We expect a gradual profit recovery at COST over time as COVID-19 expense pressures dissipate and stay at home restrictions go away” Oppenheimer analyst Rupesh Parikh reassured investors post-print.

The analyst added: “We believe longer-term investors should continue to take advantage of a volatile trade.” He has a buy rating on the stock and $335 price target. With shares up 6% year-to-date, this price target indicates upside potential of 8%.

According to Parikh, Costco’s long-term prospects continue to look very promising thanks to its unique consumer value proposition coupled with open-ended global growth prospects. That’s on top of a consistent track record of shareholder returns, a strong management team, and prospects for a special dividend, and a “leading competitive position poised to continue to drive share gains.”

Overall COST scores a cautiously optimistic Moderate Buy consensus from the Street with 12 recent buy ratings and 6 hold ratings. Meanwhile the average analyst price target stands at $331 (7% upside potential). (See COST stock analysis on TipRanks).

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