Costco Wholesale Corporation

NASDAQ Global Select
Back to all articles
Bullish +72

Why analysts are backing Costco despite its post-earnings slump

AI-generated analysis

📉 Costco shares fell 13% from their record high of $1,094.32 after a mixed fiscal third-quarter earnings report.

💰 Earnings per share missed Wall Street expectations by six cents, though revenue came in ahead of forecasts.

🛒 Comparable-store sales growth excluding gas was 6.6%, slightly below the 6.7% analyst consensus.

⛽ Gasoline sales contributed significantly to a 12% increase in total quarterly sales due to strong consumer demand.

📉 The stock has declined for seven of the past eight trading sessions, reaching lows near $950.

💡 Analysts argue the selloff represents profit-taking rather than a fundamental break in Costco's low-price business model.

🛡️ Mizuho and Jefferies analysts highlight Costco's competitive advantages including high barriers to entry and recurring membership income.

📊 Warehouse club sales have expanded at an average annual rate of 6% since 2007, outpacing broader retail markets.

🔒 Membership programs provide valuable customer data that allows the company to tailor promotions and merchandise effectively.

⚠️ Maintaining low prices puts pressure on margins, particularly during periods of elevated inflation and rising costs.

💸 Over the past five years, Costco has returned $19.7 billion to shareholders via dividends and stock buybacks.

📈 Wall Street consensus forecasts still project double-digit earnings growth for the current and next fiscal years.

🏆 D.A. Davidson analyst Michael Baker added Costco to his firm's best-of-breed list following the recent pullback.

🤖 AI sentiment analysis rates the article as 72/100 bullish despite the post-earnings stock decline.

⚠️ A key risk identified is a sustained margin squeeze that could force price hikes and damage customer loyalty.

🏪 Analysts suggest buying Costco while avoiding or selling warehouse-club peers like Sam's Club and BJ's on relative strength.

📉 The company trades at roughly 42 times forward earnings, with some assessments citing nearly 50 times trailing earnings.

🛒 Costco has gained market share from other warehouse clubs and in retail overall since 2007.

🔥 Gas strength supports the ecosystem by reinforcing member loyalty and frequency of visits.

📉 Entry point for investors is suggested after the stock stabilizes near recent lows around $950.

Bullish Signals
  • Costco reported a 12% increase in sales during the quarter, driven by strong demand at its fuel stations.
  • Excluding gas sales, comparable-store sales grew 6.6%, demonstrating continued core business strength despite inflation.
  • Analysts highlight Costco's high barriers to entry, focused merchandise selection, and recurring membership income as key competitive advantages.
  • The company has returned significant capital to shareholders over the past five years with $19.7 billion in dividends and $3.2 billion in stock repurchases.
  • Wall Street consensus forecasts still project double-digit earnings growth for the current fiscal year and the next.
  • Costco's low-price strategy continues to drive traffic and market share gains, even as price-sensitive shoppers trade down.
  • Analysts view Costco's investment in maintaining low prices as critical to preserving high membership renewal rates.
Risk Factors
  • Costco reported earnings per share that missed Wall Street expectations by six cents.
  • Comparable-store sales excluding gas grew 6.6%, slightly below the 6.7% analyst expectation.
  • The stock has declined for seven of the past eight trading sessions, falling to approximately $949.50, near a low not seen since late January.
  • Shares have fallen about 13% from their record closing high of $1,094.32 reached earlier this month.
  • The stock trades at roughly 42 times forward earnings or nearly 50 times trailing earnings, which some investors view as demanding given the company's growth outlook.
  • A sustained margin squeeze could force Costco to raise prices or cut service and assortment, potentially breaking the loyalty engine.
Full Analysis
Costco Wholesale (COST) shares have declined for seven of the past eight trading sessions, falling to approximately $949.50, which is near a low not seen since late January. This pullback follows a mixed fiscal third-quarter report where earnings per share missed Wall Street expectations by six cents, though revenue exceeded forecasts. The stock had previously reached a record high of $1,094.32 earlier in the month before the decline. Analysts argue that the selloff represents profit-taking rather than a fundamental break in Costco's business model. Mizuho analyst David Bellinger and Jefferies analyst Corey Tarlowe highlight that Costco's low-price strategy continues to drive traffic and market share gains, particularly as consumers trade down due to inflation. Gasoline sales contributed significantly to revenue growth with a 12% increase in the quarter, while comparable-store sales excluding gas grew 6.6%, slightly below the 6.7% analyst expectation. D.A. Davidson analyst Michael Baker added Costco to his firm's best-of-breed list, citing high barriers to entry, a focused merchandise selection, recurring membership income, and valuable customer data as key advantages. The warehouse club model has expanded at an average annual rate of 11% since 2018, outpacing broader retail markets. Despite the stock trading at roughly 42 times forward earnings or nearly 50 times trailing earnings, Wall Street consensus forecasts still project double-digit earnings growth for the current and next fiscal years. Costco has returned significant capital to shareholders over the past five years through $19.7 billion in dividends and $3.2 billion in stock repurchases. The primary risk identified is a sustained margin squeeze that could force price increases or cuts to service and assortment, potentially breaking the loyalty engine. However, analysts maintain that Costco's investment in low prices is critical for preserving high membership renewal rates and ecosystem strength.