S&P 500 forecast: Where next for Costco stock ahead of Q4 earnings?

Key takeaways

• Costco to keep growing sales and earnings despite tough climate
• Membership model and focus on value is resonating with customers, while inflationary pressures are easing
• Wall Street sees slower growth in new financial year, but double-digit earnings growth
• Costco shares have outperformed rivals and trade at huge premium, which may limit ability to climb higher
• S&P 500 has just suffered its worst weekly selloff in six months

Costco Q4 earnings date and time

Costco is scheduled to release results covering both the fourth quarter and the full year that ended on August 28 after US markets close on Tuesday September 26.

Costco earnings consensus

Adjusted comparable sales are forecast to rise 3.9% in the fourth quarter and EPS is seen rising 13.7% to $4.77.

If it meets those expectations, then Costco is on course to report annual adjusted comparable sales growth of 5.3% and a 6.9% increase in EPS to $14.05.

Costco earnings preview

We already have some insight into sales ahead of the results. We know that adjusted comparable sales rose 3.3% in May, 3.0% in June, 5.0% in July and 4.1% in August. That is seen smoothing out at a 3.9% increase over the fourth quarter.

That is a fairly impressive performance in the current climate, especially because of the tough comparatives from last year when sales rose by double-digit percentages. This is a testament to its focus on value and its membership model, which is continuing to draw-in customers.

Costco should see inflationary pressures ease going forward and is likely to be among the first to lower prices to solidify its value offering, which should keep memberships and sales growing. Renewal rates across the world remain at all-time highs and new memberships are rising at a high single-digit rate.

Still, Costco has not been immune to tougher conditions. For example, lower spending on discretionary items has hurt its ecommerce arm, which makes over half of its sales from big-ticket items.

Earnings should improve thanks to the growth in sales and a slight improvement in gross margins, tempered by tighter operating margins and higher interest costs. Inventory has been declining and Costco has been shifting its focus onto items that are still in demand, which should limit the need to offer discounts to shift unwanted goods and protect profitability.

Commentary on what to expect over the next 12 months will be influential, with Wall Street anticipating slower topline growth but for Costco to remain firmly on the right path to deliver double-digit EPS growth as those inflationary pressures ease.

Where next for COST stock?

Costco shares are up 22% in 2023, slightly outperforming the wider retail sector. However, further gains could be hard to come by despite its impressive performance considering the premium on its valuation multiple, which is trading at 36x forward earnings – representing an 80% premium to the industry average!

We can see that Costco has tried and failed to break above $568 since peaking in late-July, making this the immediate upside target for the stock.

The stock has been following a rising trendline for four months and this held despite the correction we saw in August. We could see Costco shares fall toward $551 to $553 before finding some support. This is in-line with the peaks of the shoulders we saw in the head and shoulder pattern seen just over a year ago, the 20-day and 50-day moving averages, and would keep the rising trendline intact.

The narrowing band between the rising trendline and the $568 peak increases the chance of a breakout over the next month.

S&P 500 analysis: Where next?

Costco is member of the S&P 500 and, due to its position in its industry, could prove influential on how other major retail stocks perform – making it the index to watch ahead of the results.

The index suffered its worst selloff in six months last week, sinking to its lowest level in over three months. We can see the retracement provided some support on Friday, potentially setting it up for a rebound at the start of this week. However, we could see fall toward 4,250 and keep the rising trendline intact.

The initial upside goal is to return above the midway of the parallel channel before having another crack at 4,500, after which it can target the July-peaks over 4,600.