Costco Wholesale Corporation (NASDAQ:COST) will announce its Q2 financials on March 2. While the retailer’s peers have set a cautious tone due to macro headwinds, Costco’s value offerings and loyal membership base will likely support its sales and earnings.
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Expectations from COST’s Q2 Earnings
Our data shows that Costco has surpassed analysts’ sales estimates 66.67% of the time in the past 12 months. In comparison, the overall industry average stands at 65.49%. As for Q2, Wall Street expects Costco to report sales of $55.57 billion compared to $51.9 billion in the prior-year quarter.
Thanks to the leverage from higher sales, analysts expect Costco to report earnings of $3.22 per share, compared to $2.92 in the prior-year quarter. Analysts’ sales and earnings estimates also reflect quarter-over-quarter improvement in sales and profit.
Recently, Truist Financial analyst Scot Ciccarelli increased his price target on COST stock following its January sales data. Ciccarelli raised the price target to $568 from $538, citing the retailer’s “extreme value proposition” that enables it to drive traffic and membership base even in a soft economic environment.
What is the Prediction for Costco Stock?
Costco stock has 16 Buy and seven Hold recommendations from Wall Street, translating into a Moderate Buy consensus rating. Furthermore, analysts’ 12-month average price target of $559 implies 15.45% upside potential.
Bottom Line
Pressure on consumer spending due to macro weakness is taking a toll on non-food sales. However, Costco’s value proposition and strong membership renewable rate set it apart from the competition and position it well to deliver solid sales and earnings despite a challenging macro outlook.
While Costco continues to impress with its financial performance, its high valuation remains a concern. Costco has historically traded at a premium from its peers owing to its solid comparable sales. Currently, COST stock is trading at a forward P/E multiple of 36.6 compared to the sector median of 18.36. Given the weak macro environment, Costco’s high valuation could limit the upside in the short term.
