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Costco (COST) stock is up 19% for the year, which is largely in line with the S&P 500. What is the outlook for COST stock and should you buy it in September?
Costco shares have generated exceptional long-term returns. The stock has nearly tripled in the past five years, far outperforming some of its retail peers.
Recent Developments in Costco Share
Costco released its fourth quarter 2021 results yesterday after the U.S. markets closed. The discount retailer reported revenue of $ 62.68 billion, up 17% from the corresponding period last year. Revenue growth topped analysts’ estimate of $ 61.56 billion.
The company’s comparable sales for the quarter, which exclude the impact of currency and gasoline prices, increased 9.4%. Looking at the different regions, comparable sales in the United States increased by 10.3%. In Canada and international markets, same-store sales growth was 6.7% and 7.3%, respectively. The company’s e-commerce sales increased 8.9% in the quarter. Growth in e-commerce sales was quite subdued in the quarter as sales increased 42.6% during the year. That said, as the economy reopened, more and more people shopped in stores instead of online.
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Costco profits exceed estimates
Costco reported net income of $ 1.67 billion in the fiscal fourth quarter and $ 5.01 billion for the full year. Profitability was better than analysts expected. The company now has 817 warehouses worldwide, including 565 in the United States and Puerto Rico. Canada comes second with 105 warehouses.
Meanwhile, the company has been talking about supply side bottlenecks, just like most other retailers have. Labor shortages, rising labor costs, delays at ports and COVID-19 outbreaks in parts of Asia have resulted in supply chain problems for many U.S. retailers.
COST imposes limits on certain goods
Meanwhile, amid the increase in coronavirus cases in the United States, there have been cases of people refueling essentials, just as we saw in the first wave of the pandemic l ‘last year. Costco has placed purchase limits on certain products like toilet paper, cleaning supplies, and bottled water.
Admitting that there had been a shortage of goods last year, Costco CFO Richard Galanti said: “Now they have a lot of goods, but there are delays of two or three weeks before the launch. delivery, as there is a limit to short-term changes in trucking. and supplier delivery needs, so it’s really everywhere.
COST inventory forecast
Of the 17 analysts polled by TipRanks, 13 rate the COST stock as a buy while the other four have a sell rating. Its average target price of $ 468.14 is a premium of only about 3.4%. However, its target price of $ 525 is an almost 14% premium over current prices.
Earlier this month, Oppenheimer reiterated Costco stock as the top pick. “We spent time looking at the outlook for the company in printing. Based on our work, we see limited gains on the upside. In addition, following the recent outperformance, we believe that the strong and accelerating composition trends announced in recent months are now reflected in equities. As a result, we see the print setup as less attractive, â€he said in his note.
Costco target price
In September alone, Morgan Stanley raised Costco’s target price from $ 425 to $ 500. Jefferies also raised its target price from $ 500 to a high of $ 525. Analysts have gradually increased COST’s target price over the past year.
Stock COST long term forecast
Costco is among the retail companies that have been successful in providing good competition for e-commerce giants like Amazon. Despite growing competition from e-commerce, Costco has managed to grow sales above the industry average. Analysts expect the company’s sales to grow 6.2% in fiscal 2022 and 7.5% in fiscal 2023. Strong growth in membership in the company and its orientation towards electronic commerce would lead to long-term growth.
Valuation of Costco shares
Costco’s valuations have some analysts worried. The stock is currently trading at a PE NTM (next 12 months) multiple of 39.9x. The multiples have averaged 33.8x over the past three years and 31.1x over the past five years. To be sure, the valuation premium is also due to the high valuations of the broader markets in the context of the unprecedented easing of monetary policy and fiscal stimulus in the United States.
Everyone said the ratings would look a bit frothy here. While some brokerages, including Barclays, expected the stock to fall after earnings, it trades slightly more after earnings. From these evaluations, almost all the positive elements appear to be embedded in the COST action.
Technical analysis of COST actions
COST action looks mixed on the charts. It is trading above the 50-day, 100-day, and 200-day SMA (simple moving average). The 50-day SMA, which is currently at $ 442.78, is strong near-term support. However, the stock is trading below the 10-day, 20-day, and 30-day SMA which indicated a near-term decline. The MACD (Convergence Divergence Moving Average) also gives a sell signal. However, the 14 day RSI of 49.4 is a neutral indicator.
Overall, Costco is among the best retail stocks to buy. However, it may be prudent to wait for a stock correction before purchasing.
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