Costco Q3 earnings top forecasts as inflation-wary consumers continue to bulk buy

Costco reported stronger-than-expected fiscal third-quarter earnings, with EPS of $4.82 on revenue of $61.96 billion, surpassing estimates of $4.24 and $63.11B, respectively, driven by an 8% increase in comparable sales. Despite the positive results, shares traded relatively flat premarket, and analysts at Bernstein noted the stock's high valuation at 53.5x P/E, suggesting potential downside risk if comparable sales growth slows, while Jefferies reiterated a Buy rating, citing continued warehouse expansion and stable margins.

Analysis

Costco Wholesale Corp (NASDAQ:COST) reported robust fiscal third-quarter results, with earnings per diluted share of $4.82 exceeding estimates of $4.24, although revenue of $61.96 billion slightly missed the $63.11 billion forecast. The retailer saw an 8% increase in comparable sales, including gas and currency changes, driven by consumer behavior of bulk-buying amidst inflation concerns and potential tariff-related price increases. Despite these strong operational metrics, which Bernstein analysts characterized as a "solid quarter with industry leading merchandising," Costco's shares traded relatively flat in U.S. premarket. Bernstein acknowledged Costco as the "highest quality company" in their coverage with significant global expansion opportunities, yet cautioned that its current price-to-earnings ratio of 53.5x indicates the stock is "priced for perfection." They suggest that any slowdown in the current high-single-digit comparable sales growth could introduce downside risk and potentially offer a more attractive entry point. Conversely, Jefferies analysts reiterated a Buy rating, highlighting expectations for continued new warehouse openings, membership fee income (MFI) growth, and a stable margin profile for Costco.

Key Decisions for Investors

• Investors should acknowledge Costco's strong operating performance and industry leadership, but remain cautious of the stock's high valuation at 53.5x P/E, which implies limited upside unless growth significantly outperforms.
• Monitor comparable sales growth trends closely, as any deceleration from the current high-single-digit rate could trigger a price correction, potentially offering a more favorable entry point as suggested by Bernstein.
• For long-term holders, continued warehouse expansion and stable margin outlook provide a positive backdrop, but this must be weighed against the immediate valuation risk.