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Costco’s Earnings Growth Could Moderate

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What could limit Costco’s growth?

Costco (COST) had impressive EPS growth in the past few quarters. The company’s adjusted earnings have grown at a double-digit rate in the past nine quarters. The company’s average growth rate is 19.3%. Costco’s stellar comparable sales growth, increased membership fee income, control on overhead costs, and lower effective tax rate supported the growth in its earnings despite pressure on its margins.

While we expect Costco’s bottom line to continue to have healthy growth in upcoming quarters, the growth rate will likely moderate. Analysts’ consensus estimate shows a similar concern. The consensus estimate indicates a deceleration in Costco’s EPS growth rate.

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Costco faces tough year-over-year comparisons in fiscal 2019, which could restrict its bottom-line growth. The absence of a significant boost from the lower tax rate could limit the company’s EPS growth. Costco’s continued investment in price to drive traffic will likely pressure its margins and EPS.

Analysts’ estimate

Analysts expect Costco’s adjusted earnings to continue to grow. However, the EPS growth rate is expected to soften a bit. Analysts expect Costco’s EPS to mark mid-single-growth in its bottom line in fiscal 2020, which indicates a deceleration in the growth rate.

Analysts expect continued pressure on margins and the higher effective tax rate to have a negative impact on Costco’s bottom-line growth.

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