More than two dozen analysts offering 12-month price targets for Costco Wholesale (NASDAQ: COST) have arrived at a median price forecast of $562.50. This would be on the higher side of the $455 - $650 range. The stock has an all-time high of $604.96 (April 07, 2022), which means there is a chance the stock could register a new high this quarter.
Expecting this is highly probable, analysts have given COST a Buy rating. Looking at how far the stock has come since its IPO also suggests that if you haven't acquired any COST shares yet, there is still time. Of course, the premium now is much higher than in 2009, when the stock began a steady climb from $48.52 and picked up momentum in early December of 2018. Since then, obviously, the stock value has increased more than tenfold.
Unfortunately, the stock has definitely been more volatile, of late. While the 52-week range may not seem like too big a margin considering the stock's consistent upward momentum, the relative high and low are only about a month apart. Indeed, the 12-month high is $612. 27, which registered on April 7, 2022; it fell to the 12-month low of $406.5101 on May 20, 2022. More importantly, perhaps, the stock's current mid-November value is $526.72, which is nearly identical to the $522.87 registered one year ago.
Consistent Earnings Parallel Sales
Costco's most recent earnings reports should not surprise anyone. Their business model is strong and their workforce is generally happy. While they pay their people well, their prices are still attractive to customers, and this is a solid combination for steady growth. All of this is reflected in the company's steady—mostly consistent—earnings growth.
For example, Costco beat the earnings target 3 out of the last 4 quarters, meeting the $3.04 estimate in Q3 of 2022. As a matter of fact, in Q1 of this year, actual earnings ($2.97) beat the range high ($2.91). Most importantly, though, actual earnings increased from $2.97 in Q1 to $4.20 in Q4. Similarly, annual earnings have steadily increased, beating the estimate every [fiscal] year until 2022 as well. Annual earnings came in at $8.19 in 2019, beating the estimate; in 2022, reported annual earnings came in a penny shy of the $13.15 estimate.
Sales follow the same kind of upward trend. Quarterly, sales increased incrementally since Q1 of 2022, when Costco registered sales of $50.4B (just missing the range high of $50.7B), to $52.6B in Q3. However, sales made a big jump in the most recent quarter, to $72.1B, beating the estimate in the process. On an annual basis, the numbers suggest even more stable growth, increasing from $152.7B in 2019 to $227.0B, this year.
Costco's Competition is Close
Costco Wholesale has a unique membership business model that operates, primarily, in the brick-and-mortar retail space. This makes them quite well-positioned to succeed, and the numbers certainly support this story. For one, their current share price ($565.54) is nestled perfectly in the middle of its 52-week range. More importantly, analysts gave the stock an 11.00% upside and projected for earnings to grow more than 9.8% in the long term.
These numbers easily make Costco a comfortable pick this week, as does a solid Price-to-Earnings ratio (P/E) of 38.79. And with a 0.99 P/S ratio, it would appear that Costco is already undervalued.
Walmart (NYSE: WMT), is also undervalued, it seems, with a P/S ratio of 0.66. That is about all they have in common, though, as WMT has a smaller upside potential (7.20%) and a 0.52 beta value that is nearly twice that of Costco.
Another Costco peer in the retail space is the popular big box store, Target (NYSE: TGT). While Target stock is near the bottom third of its 52-week range, its other metrics have more stability. For one, analysts have rated TGT stock as healthy, with an upside potential of just 2.60%. This may seem low, but analysts project Target could see nearly 47% earnings growth over the next 12 months. With a P/E of 20.4 and a beta of 1.02, TGT has been a beacon of stability.
Finally, we have the original online warehouser, Amazon (NASDAQ: AMZN). Near the bottom of its 52-week range, the stock is also a moderate buy. Although it is not performing at its best, analysts have assigned the stock a notable 55.4% upside potential. Furthermore, a projected earnings growth of more than 180% certainly implies steady growth; though a 1.23 beta means a little more volatility could be disruptive.
At the end of the day, analysts generally agree that all four of these stocks--including Costco--are a moderate Buy.