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Should You Buy Costco Stock after Its Strong Q2 Results?


Mar. 6 2020, Updated 10:53 a.m. ET

On Thursday, Costco Wholesale (NASDAQ:COST) stock fell 1.55% and closed at $315.76. Based on the last closing price, the company has a market capitalization of $139.5 billion. The stock price has risen 7.72% in the trailing five-day period, while it has risen 43.6% in the trailing 12-month period.

Currently, Costco stock is trading 2.9% below its 52-week high of $325.26 on February 21. The stock was also trading 41.1% above its 52-week low of $223.77 on March 8, 2019. On a year-to-date basis, the stock has risen by 7.4% as of Thursday.

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Costco’s Q2 earnings results

On Thursday, Costco announced its earnings for the second quarter of fiscal 2020 (quarter ended on February 16) after the market close. In the second quarter, the company reported revenues of $39.07 billion—up 10.4% YoY (year-over-year). Costco reported an adjusted EPS of $2.10—up 4.5% YoY. The overall comparable sales rose by 8.9% in the second quarter. Notably, Wall Street analysts expected the company to post a non-GAAP EPS of $2.06 on total revenues of $38.24 billion.

According to a CNBC report, Costco said, “February sales benefited from an uptick in consumer demand in the fourth week of the reporting period…We attribute this to concerns over the coronavirus.” The report also said, “the impact boosted its monthly same-store sales for February by roughly 3%. For the month ended March 1, same-store sales were up 12.1%.”

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Analysts increased the target price

Many analysts raised their target price for Costco stock after the second-quarter earnings results.

  • UBS increased its target price from $335 to $355.
  • Instinet increased its target price from $300 to $310.
  • Raymond James increased its target price from $315 to $325.
  • Deutsche Bank increased its target price from $289 to $299.
  • BMO increased its target price from $320 to $340.
  • Stifel increased its target price from $310 to $330.
  • J.P. Morgan increased its target price from $333 to $330.
  • RBC increased its target price from $343 to $350.
  • Jefferies increased its target price from $263 to $285.

Among the 30 analysts, 18 recommend a “buy”—up from 17 in the last month. About 11 analysts recommend a “hold”—unchanged from the last month. The other analyst recommends a “sell”—unchanged from the last month. Analysts have an average target price of $321.83 on Costco. The target price implies a return of 1.9% based on the closing price of $315.76 on Thursday. The consensus target price for the stock has risen from $311.75 in February—a rise of 3.2%. The lowest target price estimate is $235, while the highest is $355.00.

Target (NYSE:TGT) and Walmart (NYSE:WMT) have average broker target prices of $130.23 and $129.07, respectively. These figures imply returns of 22.9% and 11.3%, respectively, over the next 12 months.

Peer comparison

Target posted its results for the fourth quarter of 2019 on Tuesday. The company reported revenues of $23.4 billion, which implies a rise of 1.8% YoY. The company reported a non-GAAP EPS of $1.69 in the fourth quarter compared to $1.53 in the fourth quarter of 2018. Read Target’s Q4 Earnings: Key Insights and Outlook to learn more.

Walmart released its results for the fourth quarter of 2020 last month. In the fourth quarter, Walmart reported revenues of $141.7 billion—a rise of 2.1% YoY. The company reported an adjusted EPS of $1.38 in the fourth quarter—a fall of 2.1% YoY. Read Can Walmart’s Q4 Earnings Boost Its Stock? to learn more.

Costco’s stock returns

On Thursday, Costco stock was trading 1.3% above its 20-day moving average of $311.81. Meanwhile, the stock is trading 3.2% above its 50-day moving average of $305.90 and 4.5% above its 100-day moving average of $302.16. The stock’s 14-day relative strength index score of 53.9 suggests that it isn’t overbought or oversold.

Costco has an upper Bollinger Band level of $332.65. The company’s middle Bollinger Band level is $311.91, while its lower Bollinger Band level is $291.17. On Thursday, the stock closed near its middle Bollinger Band level, which also suggests that the stock isn’t overbought or oversold.

Costco stock is trending downward in today’s trading session. The stock fell by 2.27% at 10:09 AM ET.


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