Costco Stock Slides, Brushing Off Upbeat Q4 Results

Costco (COST) shares declined 3.9% to $906.42 following its Q4 report, driven by lackluster same-store sales growth despite exceeding expectations with $5.87 EPS and $86.16 billion in revenue, partly due to tariff-mitigation efforts. This marks the stock's worst session since June, pushing its YTD performance into negative territory and prompting multiple analyst price target cuts, including Morgan Stanley's reduction to $1,130. Options markets reflect this bearish sentiment, with elevated put activity, notably at the 9/26 900-strike.

Analysis

Costco's stock is under significant pressure, declining 3.9% to $906.42, following the release of its fourth-quarter results. The market's negative reaction is primarily driven by lackluster same-store sales growth, which has overshadowed a beat on both earnings, at $5.87 per share, and revenue, at $86.16 billion. The stock is now trading at its lowest point since April, has erased its year-to-date gains with a 0.5% deficit, and is on pace for its most significant single-day drop since June. Analyst sentiment appears fractured, with 15 of 34 firms rating the stock a "hold," and at least four have issued price-target cuts, most notably Morgan Stanley's reduction from $1,225 to $1,130. This suggests a re-evaluation of the company's growth outlook. Options market data indicates that bearish sentiment was already elevated heading into the report, with the 10-day put/call ratio in the 86th percentile. Post-earnings trading shows continued focus on downside protection, evidenced by new positions being opened in the weekly 9/26 900-strike puts.

Key Decisions for Investors

• Investors should prioritize analysis of the drivers behind the disappointing same-store sales, as the market is clearly signaling this metric is more critical than the headline earnings and revenue beat.
• Given the multiple analyst price target cuts, it may be prudent to reassess valuation models for Costco, as its historical growth premium is being questioned by the street.
• Monitor the $900 price level closely, as significant put option activity at this strike suggests it is a key technical and psychological support level that, if breached, could trigger further selling.