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Costco Stock’s Reaction to Strong Fiscal 3Q17 Earnings

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Costco stock rose 2.0% after hours

Costco Wholesale (COST) posted better-than-expected fiscal 3Q17[1. ended May 7, 2017] results after the market closed on May 25, 2017. Then COST stock rose ~2.0% after hours. 

The company’s financials were positively impacted by strong comps (comparable store sales) in the United States (SPY) and international locations, higher fuel earnings, and benefits from its new Citi Visa co-branded credit card facility.

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YTD stock performance

Given the company’s ability to accelerate sales growth and drive traffic, Costco stock has risen 13.5% YTD (year-to-date) as of May 25, 2017. The stock performed better than the broader index and outperformed its peers. 

The S&P 500 index (SPX-INDEX) and the S&P 500 Consumer Staples index have generated returns of 7.9% and 8.8%, respectively, on a YTD basis. Peers such as Target (TGT) and Kroger (KR) saw their stocks fall 25.0% and 15.3%, respectively.

However, Walmart (WMT) marked a 13.3% rise in its stock on a YTD basis, reflecting strong digital and in-store sales.

Is there more upside?

As analysts expected, most of Costco’s challenges seem to have abated or at least diminished. The company posted strong sales numbers driven by an improvement in store traffic and average transaction size, which further strengthened investor confidence in the stock. The company’s planned membership fee hike and benefits from the Citi Visa co-branded credit card facility will provide an additional leverage to offer low pricing and drive top-line growth.

At a time when retailers, except a few such as Walmart, are struggling to remain afloat, Costco continues to perform well and generate strong financials. Analysts remain upbeat on Costco stock, which we’ll look at more in a later part of this series. That could further boost COST stock.

Let’s move on to the rest of this series where we’ll look at Costco’s fiscal 3Q17 EPS (earnings per share) and sales. We’ll also look at the company’s valuation and analysts’ recommendations.

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