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Will Costco Continue to Beat Walmart and Target?

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Jan. 25 2019, Updated 4:15 p.m. ET

Costco to sustain industry-leading sales growth

Costco (COST) continues to outshine both Target (TGT) and Walmart (WMT) in terms of sales. The company has generated industry-leading comps for the past several quarters thanks to the continued growth in its traffic and ticket size. Costco’s top line has grown at an average rate of 10.7% over the last seven quarters, which is encouraging, as the company faces tough competition from the likes of Walmart, Target, and Amazon (AMZN).

Both Target and Walmart have significantly expanded their e-commerce platforms. Meanwhile, Amazon is quickly expanding its grocery offerings.

We expect Costco to continue to generate strong sales growth in the coming quarters, reflecting higher comps. Costco’s expanded offerings and investments in pricing to widen the value gap with its peers are expected to drive its traffic.

Analysts expect Costco’s top line to grow at a high-single-digit rate in the coming quarters, higher than the low- to mid-single-digit growth that’s expected for both Walmart and Target.

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EPS to grow at a healthy rate

Costco’s EPS have increased at a strong double-digit rate in the past several quarters, and analysts expect its momentum to continue in 2019. Costco faces tough YoY comparisons on the bottom line front, but analysts expect its EPS to grow at a high-single-digit rate in 2019, reflecting comps growth, higher membership fee income, and tight controls on overhead costs.

In comparison, analysts expect Target’s EPS growth rate to decelerate in 2019 compared to 2018. Meanwhile, Walmart’s bottom line could remain pressured by its Flipkart acquisition.

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