Costco Fully Valued Ahead of Earnings

Costco Wholesale Corp. (COST) reports fiscal Q1 2022 earnings after Thursday’s closing bell, with analysts looking for a profit of $2.65 per-share on $49.75 billion in revenue. If met, earnings-per-share (EPS) will mark a 16% profit increase compared to the same quarter last year. The stock rose 3.3% in September after the company exceeded Q4 EPS guidance with a 17.5% revenue increase, but fell 7% in the next six sessions.

Black Friday Bummer

The big box retailer reported November comparative sales of 9.2%, with net sales rising 15.7% year-over-year. E-commerce growth slowed to 11.7%, held back by tough comparisons after 2020’s pandemic sales surge. Despite those results, investor sentiment is mixed after U.S. Black Friday store sales dropped $100 million compared to last year’s record of $9 billion. In addition, it was the first time the annual event generated no online spending growth.

The stock has defied gravity throughout 2021 and is now boasting an impressive 41% year-to-date return. However, rivals Walmart Inc. (WMT) and Target Corp. (TGT) have struggled in the last four months, suffering through active distribution that increases risk heading into Thursday’s report. In addition, the weekly Stochastic indicator has now flipped into a sell cycle, predicting rangebound action or lower prices into the first quarter of 2022.

Wall Street and Technical Outlook

Wall Street consensus stands at a ‘Moderate Buy’ rating based upon 17 ‘Buy’, 6 ‘Hold’, and no ‘Sell’ recommendations. Price targets currently range from a low of $423 to a Street-high $600 while the stock is set to open Thursday’s session right on top of the median $532 target. This mid-range placement indicates that Costco is fully valued at this time and will need to post blow-out quarterly results to book higher prices.

Costco cleared February 2020 resistance around 325 in August and stalled near the 400 level in November. A secondary breakout in June 2021 attracted intense buying interest, lifting the stock nearly 180 points into November’s all-time high at 560.78. A distribution wave into December has reversed bullish signals, with price action likely to carve an extended trading range, with resistance at the high and support at the 50-day moving average near 500.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.