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Will Costco Outperform Walmart and Target in 2019?

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Jan. 3 2019, Published 8:28 a.m. ET

What to expect

The stocks of Costco (COST), Walmart (WMT), and Target (TGT) have taken a beating recently, as continued weakness in margins didn’t sit well with investors. However, the recent correction in the stock prices of these big-box retailers could be a good opportunity to buy these stocks, especially Costco, which is expected to continue to outperform peers with its sales and earnings growth rate.

We expect higher consumer spending and the expansion of online offerings to continue to drive shoppers at these retailers. Meanwhile, Costco’s value proposition and expanded offerings are expected to drive traffic.

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Costco faces tough YoY comps in fiscal 2019. However, Wall Street remains upbeat and expects Costco to sustain the top and bottom line growth momentum in coming quarters. Analysts expect Costco’s top line to continue to grow at a high-single-digit rate led by strong comps. Meanwhile, its bottom line is projected to gain from higher sales and tight control over the overhead costs. Also, the lower tax rate in the first half of fiscal 2019 is anticipated to support the earnings growth.

Stock performance in 2018

Costco stock outperformed broader markets in 2018 and increased 9.5%. However, Costco stock fell about 12% in December. Meanwhile, Target stock wiped out almost all its gains and ended the year with an increase of a mere 1.3%. As for Walmart, its stock fell 5.7% in 2018.

In comparison, the S&P 500 Index was down 6.2% in 2018.

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