Costco Earnings Preview: May 2009

Costco [[COST]] is scheduled to report their fiscal third quarter 2009 results before the market opens on Thursday, May 28. Based on our analysis, we at are expecting COST to report better than expected results that exceed Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $16.28 billion and EPS of $.54. This would represent a 2% decline in revenues from last year’s $16.61 billion in the same period. The current analyst consensus estimates calls for revenues of $16.17 billion and EPS of $.53.


Store traffic appears growing as cost-conscious consumers look for bargains. However, average transaction values are declining as consumers become more prudent in their purchasing behavior. This trend is likely to continue into the fall when comps become more favorable.


Share Performance

Since the beginning of the year, Costco’s shares have declined almost 10%. In 2008, COST’s shares fell 25% as the stock outperformed the 34% decline in the Dow Jones industrial average.



Shares are now trading at 17x consensus 2010 EPS estimates. This is above the relative valuations of their peer group. With Wall Street anticipating double-digit declines in Costco’s earnings this year and the current premium share valuation we would not recommend buying at this time.


Recommendation: Hold with a $45 price target.


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