HomeBusinessStock of the Day, Costco, breaks out amid rising earnings estimates and...

Stock of the Day, Costco, breaks out amid rising earnings estimates and surging gold sales

IBD Stock Analysis

  • Cup has a buy point of 787.08. In buying range up to 826.43.

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* No real-time data. All data shown was captured at 1:38 PM EDT on 05/16/2024.

Costco (COST) is the IBD Stock of the Day as robust monthly sales data supports rising earnings estimates. Costco shares broke ahead Thursday, ahead of its earnings report later in May.




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On Thursday, Walmart (WMT) gave an upbeat outlook amid a drop in inflation while beating earnings expectations for the latest quarter. Walmart shares also broke out Thursday.

Warehouse retail leader Costco announced on May 8 that sales rose 7% in April from a year ago. That followed April’s announcement of a 9% sales increase in March, accompanied by a Costco dividend increase of nearly 14%. The rising demand for gold bars has boosted foot traffic.

A dozen analysts raised their price targets for Costco shares in May, FactSet shows. A cut.

Costco stock is breaking out

Shares rose 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 basis. The retail giant initially approved that submission on May 10 before withdrawing from the submission, MarketSurge’s pattern recognition shows.

The relative strength line is approaching its high point as the stock breaks out, confirming technical strength. The RS line, the blue line in the featured chart, tracks a stock’s performance against the S&P 500 index.

Costco earnings growth

The retailer reports its fiscal third quarter on May 30. Analysts now expect an average earnings of 3.71 per share, according to FactSet. That’s up from expectations for third-quarter earnings per share of $3.61 at the start of 2023. Full-fiscal year estimates have risen from $15.58 to $16.11 over the same period.

For the full year, Wall Street sees an increase in earnings per share of almost 14% on revenue growth of 5%. Costco’s fiscal year ends in August.

Costco receives a Superior EPS Rating of 91 out of 99 from Investor’s Business Daily. The warehouse giant boasts four consecutive years of annual earnings per share growth, according to the IBD Stock Checkup Tool.

Earnings per share grew by an average of 13.5% over the past three quarters. That is above the three-year average of 11% profit growth.

Membership, gold bars and e-commerce

In fiscal 2023, membership fee revenue rose 8% to $4.6 billion, according to Costco’s annual report. The membership base grew to almost 128 million cardholders, with a renewal rate of 90%.

Those numbers help: growing e-commerce sales in the shadow of Amazon (AMZN). Like Costco, Walmart is also seeing robust e-commerce growth.

In the latest quarter, Costco’s e-commerce sales grew 18.4% year-over-year. That growth shows it’s getting better at promoting the value of expensive items like appliances, mattresses and tires, the company says.

Meanwhile, customers are flocking to Costco to buy gold bars and silver coins. An analysis by Wells Fargo shows the retailer may be selling $200 million worth of gold and silver per month.

The warehouse club started selling precious metals late last summer.

The measure appears to be an attempt to burnish Costco’s “treasure hunt” image. Margins on gold are likely minimal, Wells Fargo analysts said.

Over the past year, Costco stock is up 60.75%, more than double the return of the S&P 500. It has far outperformed that index – and Amazon stock – over the past five years, rising 221 %.

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