Costco Shares Fall 17% Ahead of Thursday Earnings Release
Costco Wholesale shares hit a year-low of $895 as investors brace for Q4 results, with consensus expecting revenue of $94.8 billion.
Key points
- Costco shares dropped 17% from May highs to a 52-week low of $895, nearing bear market territory.
- Analysts expect Q4 revenue of $94.8 billion and EPS of $6.53, up from $5.87 a year ago.
- The company holds $18.9 billion in cash, significantly exceeding its $5.6 billion in long-term debt.
Costco Wholesale (NASDAQ: COST) shares have declined 17% from their May peak, reaching a 52-week low of $895. The stock now sits below key technical support levels and all major moving averages, positioning it on the threshold of a bear market. This downturn reflects growing skepticism among investors ahead of the company's upcoming earnings announcement.
The retailer reports its fourth-quarter results on Thursday, a critical test of its growth trajectory amid persistent inflation. While the stock price has eroded significantly, the company’s financial fundamentals remain robust, with a cash position of $18.9 billion dwarfing its $5.6 billion in long-term debt. This liquidity provides a buffer against economic headwinds and supports potential shareholder returns.
Q4 Revenue Expected to Hit 94.8 Billion
Consensus estimates project Costco’s fourth-quarter revenue to rise 10% year-over-year to $94.8 billion. This figure would push full-year revenue past the $301 billion mark, extending the 11.6% growth seen in the third quarter, which totaled $69.19 billion. Comparable sales growth of 9.8% in the previous quarter suggests continued demand despite higher price levels.
Earnings per share are forecast to increase to $6.53 from $5.87 in the prior year period. For the full fiscal year, analysts anticipate EPS climbing to $20.5 from $18.2 a year earlier. However, sentiment is cautious, with some market participants expecting the company to miss these revenue and earnings targets, a view highlighted in recent Benzinga coverage.
Valuation and Technical Support Levels
The forward price-to-earnings ratio has compressed to 43, slightly below the five-year average of 45. Despite this relative improvement, the valuation remains elevated compared to broader market averages. Technical indicators show the stock has broken below the $905 support level, with the Relative Strength Index falling under the neutral 50 mark, signaling weakening momentum.
Market participants are bracing for volatility, with implied volatility rising to 35% against a historical average of 17%. The primary downside risk points toward an ultimate support level of $875. Conversely, a positive earnings surprise could trigger a rebound, potentially restoring the stock toward the $1,092 consensus price target, although current technical trends suggest continued pressure in the near term.
