Costco is the IBD Stock Of The Day as robust monthly sales data bolster rising profit estimates. Costco stock broke out Thursday ahead of its earnings report later in May.
On Thursday, Walmart gave an optimistic outlook amid a dip in inflation, while beating earnings estimates for its latest quarter. Walmart stock also broke out Thursday.
Warehouse retail leader Costco announced May 8 that April sales rose 7% from a year ago. That followed its April announcement of a 9% gain in March sales, accompanied by a nearly 14% Costco dividend hike. Surging gold bar demand has boosted foot traffic.
A dozen analysts hiked their price targets on Costco stock in May, FactSet shows. One cut.
Costco Stock Breaks Out
Shares gained 0.8% to 793.07 on the stock market today. That put Costco stock in a buy zone above a 787.08 buy point from a cup base. The retail giant initially cleared that entry May 10 before retreating below the entry, the MarketSurge pattern recognition shows.
The relative strength line is near highs as the stock breaks out, a confirmation of technical strength. The RS line, the blue line in the chart shown, tracks a stock's performance against the S&P 500 index.
Costco Earnings Growth
The retailer reports for its fiscal third quarter on May 30. Analysts, on average, now expect earnings per share of 3.71, FactSet shows. That is up from views for Q3 EPS of $3.61 at the start of 2023. Estimates for the full fiscal year have moved up over this same period from $15.58 to $16.11.
For the full year, Wall Street sees a nearly 14% EPS increase on 5% revenue growth. Costco's fiscal year ends in August.
Costco earns a superior EPS Rating of 91 out of 99 from Investor's Business Daily. The warehouse retail giant boasts four consecutive years of annual EPS growth, the IBD Stock Checkup Tool shows.
Earnings per share growth averaged 13.5% over the last three quarters. That is above the three-year average of 11% earnings growth.
Membership, Gold Bars And E-commerce
In fiscal 2023, revenue from membership fees increased 8% to $4.6 billion, Costco's Annual Report shows. Its membership base grew to nearly 128 million cardholders, with a 90% renewal rate.
Helping those numbers: growing e-commerce sales in the shadow of Amazon. Like Costco, Walmart is also seeing robust e-commerce growth.
In the latest quarter, Costco's e-commerce sales grew 18.4% vs. the year earlier. That growth show it's getting better at promoting the value of big-ticket items like appliances, mattresses and tires, the company says.
Meanwhile, customers are flocking to Costco to buy gold bars and silver coins. The retailer may be selling $200 million worth of gold and silver per month, a Wells Fargo analysis found.
The warehouse club began selling bullion late last summer.
The move appears to be an attempt to burnish Costco's "treasure hunt" image. Margins on gold are likely to be minimal, Wells Fargo analysts said.
Over the past year, Costco stock has gained 60.75%, more than double the returns of the S&P 500. It has far outperformed that index — and Amazon stock — over the past five years, soaring 221%.
