What a High Valuation Means as Costco Rolls Into Earnings

Costco will report earnings later this month

May 12, 2022 at 10:43 AM
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Costco Wholesale Corporation (NASDAQ:COST) is scheduled to release its fiscal third-quarter earnings report after the close on Thursday, May 26. In its most recent quarterly report, Costco reported a earnings per share (EPS) of $2.92, topping analysts' estimates, despite a drop in same-store sales growth. Wall Street is now expecting that COST will report increased earnings of $3.03 per share for its fiscal third quarter.

While Costco hasn't been immune to the broad-market selloff, suffering a sharp pullback from its mid-April record highs near the $608 level, it's still clinging to a year-over-year lead of 32.9%. COST is down 12.9% in 2022, but could find support at the $480 level, which captured its February pullback before launching the stock to its aforementioned highs. 

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Nonetheless, COST provides an incredibly reliable business model and fundamentals. Costco has managed to consistently grow its top and bottom lines over multiple years and is expected to continue doing so in the coming years. Currently, Costco's trailing 12-month revenues and net income are up 7% and 10%, respectively, since fiscal 2021, as well as 48% and 76%, respectively, since fiscal 2018. In addition, COST is estimated to end fiscal 2022 with 13.7% revenue growth and 18.4% earnings growth followed by a projection that it will increase revenues 8.1% and earnings 10.1% for fiscal 2023.

Costco holds a strong balance sheet with $12.3 billion in cash and $9.25 billion in total debt. The big box retailer also offers a dividend yield of 0.72% with a forward dividend of $3.60, making the stock a solid option for long-term investors. However, at a high forward price-earnings ratio of 34.01 and a price-sales ratio of 1.03, COST does run the risk of dropping more in the short-term, due its high valuation.


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