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Where Costco Stock Might Go from Here


Mar. 8 2018, Updated 12:42 p.m. ET

Bottom line fails to impress investors

Costco (COST) reported mixed fiscal 2Q18 results on March 7. Afterward, its stock fell about 1.0% in after-hours trading. Despite reporting strong double-digit growth in its EPS (earnings per share), it failed to impress investors, as its bottom line, excluding the impact of tax benefits, missed analysts’ expectations. Meanwhile, the company continued to generate stellar comps growth, reflecting higher traffic and transaction size in the US. Costco’s continued investment in price and value offerings have propelled its sales higher.

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Investors do acknowledge the company’s unique business model, which makes it somewhat immune to the growing threat from e-commerce players, primarily Amazon (AMZN). However, they remain wary of the fact that sooner or later, the consumer shift towards the e-commerce channel is likely to hurt Costco’s performance. Meanwhile, the company hasn’t done much on the digital front and lags both Walmart (WMT) and Target (TGT), who have significantly ramped up their digital efforts.

However, Costco did introduce two delivery options last year in partnership with Instacart. Overall, analysts expect Costco’s top and bottom-line results to continue to outperform those of Walmart and Target. However, margin pressure from price investments and increased competition could remain a drag.

Stock price movement

Costco stock is up slightly on a YTD (year-to-date) basis as of March 7, 2018. Meanwhile, Target stock has risen 9.5%. On the contrary, Walmart stock fell 11.1% during the same period, reflecting a slowdown in its e-commerce sales. The S&P 500 Index has grown by 2.0% on a YTD basis.


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