What Costco Options are Saying About Earnings

The brokerage bunch has been split on the wholesale retailer

Deputy Editor
Dec 11, 2019 at 1:36 PM
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It's more of the same for Costco Wholesale Corporation (NASDAQ:COST) stock ahead of the retailer's fiscal first-quarter earnings report, due out after the close tomorrow evening. Since being rejected by the $307 region -- home to its early September record highs -- the stock has been consolidating just south of its 60-day moving average and round $300 mark. Ahead of tomorrow's report, the shares are down 0.6% at $294.13, still maintaining a 44% gain on the year. 

COST Dec 11

This pre-earnings pessimism isn't completely unwarranted, especially considering the stock's tendency to slip the session after its last eight quarterly reports. Just three of Costco's next-day returns during the last two years have been positive, and include a post-earnings drop of 8.6% last December. This time around, the options pits are pricing in a 5.2% swing, regardless of direction, slightly bigger than the 3.2% move the shares have averaged over the past eight quarters. 

Taking a closer look at the options pits, it's bulls who have ruled the roost. In fact, during the last 10 weeks at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 1.63 calls have been purchased for every put, and what's more, this ratio sits higher than 88% of all other readings from the past year. Today's activity is mostly in line with what's typically seen at this point, with 11,000 calls and 6,340 puts across the tape so far. 

Tomorrow's report could attract the attention of the brokerage bunch, too. As of now, sentiment is split, with 11 "buy" or better ratings, and nine "hold" or worse recommendations on the board. What's more, the consensus 12-month target price of $305.38 is just a chip-shot away from current levels. 

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