Will Wall Street See a Q3 Earnings Beat From Costco (COST)?

Costco Wholesale Corporation COST is slated to report third-quarter fiscal 2018 results on May 31. In the last reported quarter, the company missed the Zacks Consensus Estimate by 2.1%. However, we note that in the trailing four quarters, this Issaquah, WA-based company has outperformed the Zacks Consensus Estimate by an average of 2.1%. Let’s see how things are shaping up prior to this announcement.

Investors are keeping their fingers crossed and hoping for a positive earnings surprise from Costco in the quarter to be reported. The Zacks Consensus Estimate for the quarter under review is $1.68, reflecting a year-over-year increase of roughly 20%. We observe that the Zacks Consensus Estimate has increased by a penny in the past 30 days. Analysts polled by Zacks expect revenues of $31.74 billion, up approximately 10% from the year-ago quarter.

Which Factors Hold Key to Costco’s Performance?

We believe that the company’s growth strategies, sturdy comparable-store sales (comps) performance, strong membership trends and higher penetration of Citi Visa co-brand card program are the pillars that reinforce its position. While major chains are grappling with sluggish store and mall traffic as consumers switch to online shopping, the company seems somewhat resilient to the challenging retail backdrop.

Costco continues to be one of the dominant retail wholesalers based on the breadth and quality of merchandise offered. In fact, the company’s strategy to sell products at heavily discounted prices has helped it to remain on growth track. The company remains committed toward opening new clubs in domestic and international markets.

Additionally, a differentiated product range enables Costco to provide an upscale shopping experience for its members, consequently resulting in market share gains and higher sales per square foot. It is also gradually expanding e-commerce capabilities in the United States, Canada, the U.K., Mexico, Korea and Taiwan. Consequently, comparable e-commerce sales surged 43.1% in April, 33.2% in March and 38.1% in February.

Costco continued with positive comps performance driven by improved store traffic and average transaction size. Comps for April increased 10.9%, following an advance of 8.6% in March and 10.5% in February. Certainly, improving labor market, rising disposable income and elevated consumer sentiment are working in tandem for the company.

Model Predicts Higher Probability of Earnings Beat

Our proven model shows that Costco is likely to beat estimates this quarter. This is because a stock needs to have both — a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Costco has an Earnings ESP of +1.29% and a Zacks Rank #3. This makes us reasonably confident that the bottom line is likely to outperform estimates.

Other Stocks With Favorable Combination

Here are some other companies you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat:

DSW Inc. DSW has an Earnings ESP of +3.47% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

PVH Corp. PVH has an Earnings ESP of +0.56% and a Zacks Rank #3.

The Kroger Co. KR has an Earnings ESP of +3.41% and a Zacks Rank #3.

5 Medical Stocks to Buy Now

Zacks names 5 companies poised to ride a medical breakthrough that is targeting cures for leukemia, AIDS, muscular dystrophy, hemophilia, and other conditions.

New products in this field are already generating substantial revenue and even more wondrous treatments are in the pipeline. Early investors could realize exceptional profits.

Click here to see the 5 stocks >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

To read this article on Zacks.com click here.