Costco Sells Off Despite Strong QuarterThe big box retailer could pull back toward the 300 level in coming weeks.
Big box retailer Costco Wholesale Corp. (COST) posted a Q4 2020 profit of $3.13 per-share after Thursday’s closing bell, beating estimates by a wide margin, while revenue rose 10.1% year-over-year to $52.28 billion, matching guidance provided on Sept. 2. Total comps rose 14.1%, with e-commerce comps posting a spectacular 91.3% increase. The stock fell more than 1% on Friday despite the upbeat report and is now trading more than 20 points below the all-time high at 363.67.
Costco Builds E-Commerce Market Share
The mega-store has picked up market share during the COVID-19 pandemic, keeping doors open with other ‘essential’ retailers while smaller storefronts were forced to close, due to stay-at-home and quarantine orders. Extraordinary e-commerce growth has underpinned profits during this period, building market share with older folks forced to abandon brick and mortar transactions. However, closures in profitable optical, hearing aid, photo, and food court departments have undermined otherwise robust revenues.
Telsey Advisory Group analyst Joseph Feldman raised their price target on Friday, noting that “Costco should have a solid FY21, driven by a MSD comp, high membership renewal, healthy e-commerce growth, and the lapping of COVID-19 related expenses. As such, we are maintaining our ‘Outperform’ rating and are raising our 12-month price target to $390, which is based on applying a P/E multiple of ~40x to our new FY21 EPS estimate of $9.78, up from $9.61.”
Wall Street And Technical Outlook
Wall Street consensus rates Costco as a ‘Moderate Buy’ based upon 18 ‘Buy’ and 7 ‘Hold’ recommendations. No analysts are recommending that shareholders sell their positions and move to the sidelines at this time. Price targets currently range from a low of $305 to a street-high $412 while the stock closed Friday’s session nearly $30 below the median $370 target. This humble placement could underpin a rally back to the all-time high prior to year’s end.
Even so, buying pressure has failed to match bullish price action since March, with accumulation readings stuck below first quarter highs even though Costco has posted a series of new highs. This bearish divergence has now come home to roost, triggering an intermediate correction that’s been testing support at the 50-day moving average for last two weeks. A breakdown here could generate major downside, dropping the stock into strong support just above 300.
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