Costco's Earnings Are Coming Up. Analysts Like the Stock, But Expect Volatility Ahead.

Costco (COST) is scheduled to release its Q4 earnings report on Thursday, following preliminary Q4 sales of $84.4 billion, an 8% year-over-year increase, and a 5.7% rise in comparable store sales, which come after earlier investor concerns about decelerating growth. Despite potential near-term stock volatility stemming from difficult year-over-year comparisons, Oppenheimer analysts recommend leveraging any dips as a buying opportunity, asserting the company's ability to deliver sustainable results.

Analysis

Costco is set to report its full fourth-quarter earnings amidst a moderately positive sentiment backdrop, with preliminary results already mitigating earlier investor concerns about decelerating growth. The company reported Q4 sales of $84.4 billion, an 8% year-over-year increase, complemented by a 5.7% rise in comparable store sales. Despite these strong top-line figures, analysts from Oppenheimer anticipate near-term stock volatility, citing difficult year-over-year comparisons in non-food categories and potential earnings per share headwinds. Factors complicating these comparisons include last year's stockpiling ahead of a port strike, noted by Citi, and a recent expansion of warehouse hours. Nevertheless, the prevailing analyst view, particularly from Oppenheimer, frames any resulting price weakness as a buying opportunity, emphasizing Costco's ability to deliver "sustainable" long-term results. This bullish outlook is further supported by a consensus analyst price target of $1,080, which suggests material upside from its current level of approximately $944, even after the stock's 170% appreciation over the past five years.

Key Decisions for Investors

• Long-term investors should consider using any potential stock volatility post-earnings as a strategic buying opportunity, consistent with Oppenheimer's guidance to take advantage of near-term headwinds.
• Scrutinize the full earnings release for details on profit margins and forward guidance, as the strong pre-announced sales growth of 8% has already eased prior concerns regarding a slowdown.
• Monitor management's commentary on the difficulty of year-over-year comparisons and any specific guidance on near-term EPS pressure, as these are the key risk factors identified as potential drivers of volatility.