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Costco’s Bottom-Line Growth Could Stay Strong

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Analysts’ estimates

Costco’s (COST) bottom line has grown briskly. Its EPS have grown at a double-digit percentage rate in the past seven quarters, at an average of 17.3%. Stellar comps growth and a lower effective tax rate have driven the bottom-line growth, and pricing investments have limited it. Analysts expect Costco’ EPS to sustain their momentum and grow 19.0% year-over-year to $1.69 in fiscal 2019’s second quarter.

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Peers’ comps and lower effective tax rates also drove their bottom lines. Walmart’s (WMT) performance was impressive in fiscal 2019 and its bottom line grew by an impressive 6% in its last reported quarter, surpassing analysts’ estimates. Meanwhile, Target’s (TGT) bottom line has recorded stellar growth in the past three quarters. Analysts expect Target’s bottom line to grow ~11% in fiscal 2018’s fourth quarter.

EPS growth drivers

Costco’s sustained comps growth is projected to boost its bottom line. Higher membership fee income, overhead savings, and a significantly lower effective tax rate have also driven its earnings growth. However, margin pressure from pricing investments has limited its bottom-line growth. Walmart’s and Target’s weak margins have also affected their bottom-line growth.

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