As Costco Wholesale Corporation (COST) prepares to unveil its second-quarter fiscal 2025 earnings results on March 6 after the market closes, investors face an important decision: Should they buy the stock now or hold their current positions? With earnings expectations and market conditions in mind, it is crucial to evaluate key factors influencing Costco’s performance and whether the stock offers an attractive entry point ahead of its earnings report.Costco's strategic investments, customer-centric approac ...

Core Viewpoint - Costco Wholesale is set to report its fiscal second-quarter results, with expectations for continued growth despite a challenging market environment [1][2]. Financial Performance Expectations - Analysts predict an 8% revenue increase, reaching $63 billion for the 12-week period ending mid-February, with a modest profit forecast of $4.10 per share, reflecting less than a 5% year-over-year increase [4]. - Costco's total sales rose by 9.2% in December and 9.9% in January, with domestic comparable sales remaining above 9% [5]. - Analyst estimates for quarterly profit have gradually increased from $4.01 to $4.10 over the past three months, indicating positive sentiment [5]. Membership Fee Adjustments - Costco recently increased its membership fees, with the Gold Star plan rising from $60 to $65 and the Executive tier from $120 to $130, marking the smallest percentage increase since 1983 [6]. - Membership fees contribute approximately 2% of total sales but are crucial for profitability, translating into a significant portion of the bottom line [7]. Historical Context and Leadership - Costco has maintained positive top-line growth for over three decades, with only one year of decline during the Great Recession [9][10]. - CEO Ron Vachris, a long-time employee, has ensured continuity in leadership and operational strategy [10]. Market Position and Valuation - Costco's stock is currently valued at 57 times this fiscal year's net income projection, indicating a premium valuation compared to fundamentals [9]. - Historical performance suggests that betting against Costco has not been successful, reinforcing confidence in its market position [11].

Core Insights - Costco's dividend has consistently increased since its introduction in 2004, with a recent special dividend of $15 per share in January 2024 [1] - The current dividend payout is $4.64 per share, supported by strong free cash flow of approximately $2.2 billion in Q1 fiscal 2025 [3] - Despite the consistent dividend growth, the yield is only 0.4%, significantly lower than the S&P 500 average of 1.25% [4] Dividend Analysis - Costco's dividend yield is low compared to competitors, with Walmart at 0.9% and Target at 3.5% [5] - In 2024, shareholders received $19.50 per share in total dividend income, but the yield remains below 1.9% when considering the current share price [4] - The company has a history of increasing dividends, having raised its payout for 21 consecutive years [10] Stock Performance - Costco's stock price increased over 40% last year, outperforming the S&P 500 [6] - The company operates 890 warehouses globally, with plans to open 29 more in fiscal 2025 and a renewal rate of 91% [7] - Fiscal 2024 net income reached $7.4 billion, a 17% increase year-over-year, with profits rising 13% in Q1 fiscal 2025 [8] Valuation Concerns - The current P/E ratio is at an all-time high of 62, raising concerns about valuation sustainability [8][12] - Analysts forecast only 13% annual profit growth for fiscal 2025, which may not justify the high earnings multiple [9] - The low dividend yield and high valuation suggest that investors may find better returns in other retail stocks [12]

Core Viewpoint - The consumer staples sector is demonstrating resilience amid a broader market downturn, outperforming the S&P 500 and breaking through previous resistance levels [1][2]. Group 1: Market Performance - The S&P 500 ETF has declined nearly 3% in a week, with most sectors following this downward trend due to rising economic uncertainty [1]. - The Consumer Staples Select Sector SPDR Fund (XLP) has outperformed the broader market, showcasing its defensive nature during turbulent times [2][3]. Group 2: Sector Characteristics - Consumer staples include essential goods such as food, beverages, household items, and personal care products, which maintain steady demand regardless of economic conditions [2]. - This sector is considered a "defensive" investment, providing consistent revenue and earnings, especially when growth stocks falter [3][4]. Group 3: Investment Opportunities - The XLP ETF offers diversified exposure to the consumer staples sector with a low expense ratio of 0.09% and a dividend yield of 2.2%, making it a cost-effective choice for long-term investors [6]. - Costco Wholesale, as XLP's largest holding, has seen its stock rise over 43% in the past year, with a projected EPS of $4.09 for its upcoming earnings report [8][9]. - Philip Morris International has surged 72% over the past year, with a robust dividend yield of 3.43% and strong earnings guidance for 2025, driven by a significant increase in oral product shipments [10][11].

Group 1 - Costco is opening nine new warehouse stores globally this year, with six in the U.S. set to open in March 2025 [1] - New store locations in the U.S. include Brentwood, Highland, Prosper, Weatherford, Genesee County, and Sharon, with additional openings in Stuart, Florida, and Minami Alps, Japan [1] - The company plans to open a Costco in Ardeer, Australia later this year, although no specific date has been provided [3] Group 2 - Costco's CEO announced a projection of 29 openings during fiscal year '25, including 26 net new buildings, with 10 warehouses outside the U.S. [5] - The retailer reported net sales of $19.51 billion for January, reflecting a 9.2% increase from the previous year [5] - Currently, Costco operates 897 warehouses worldwide, with growth opportunities identified in Canada, Mexico, Europe, and Asia [6]

Group 1 - The momentum trade has shifted from large-cap technology and AI-focused companies to unexpected players such as Walmart and Costco, along with some major banks [1] Group 2 - The article emphasizes the importance of thematic investing and market events, highlighting the need for financial narratives that resonate with everyday investors [1] - It discusses the role of macro drivers in various asset classes, including stocks, bonds, commodities, currencies, and cryptocurrencies [1] - The use of empirical data and charts is noted as a method to effectively communicate financial information [1]

Core Viewpoint - Costco's stock experienced a decline of 2.6% due to negative news from rival Walmart, despite Costco's usual strong performance in the market [1]. Group 1: Company Performance - Walmart reported its fourth-quarter and full-year fiscal 2025 financial results, showing decent year-over-year growth in revenue, but a decline in net income [2]. - Walmart's profitability guidance for fiscal 2026 fell short of analyst expectations, impacting market sentiment towards Costco as well [2]. Group 2: Market Dynamics - Costco operates on a membership model, contrasting with Walmart's open supermarket format, yet both companies are affected by the same retail environment [3]. - Concerns about one retailer can lead to market reactions that impact others in the same sector, as seen with Costco's stock movement following Walmart's results [3]. Group 3: Investor Sentiment - Despite the negative impact from Walmart's results, there are positive indicators in Walmart's performance, such as a 16% year-over-year growth in international e-commerce and overall revenue growth exceeding 4% [4]. - The overall sentiment remains bullish on large retail companies, including both Costco and Walmart [4].

Core Viewpoint - Growth investors are focused on stocks with above-average financial growth, but identifying such stocks can be challenging due to associated risks and volatility [1] Group 1: Growth Stock Identification - The Zacks Growth Style Score simplifies the process of finding promising growth stocks by analyzing a company's real growth prospects beyond traditional metrics [2] - Costco (COST) is highlighted as a recommended stock with a favorable Growth Score and a top Zacks Rank [2] Group 2: Earnings Growth - Earnings growth is a critical factor for growth investors, with double-digit growth being particularly attractive [4] - Costco's historical EPS growth rate is 16.2%, with a projected EPS growth of 11.9% this year, surpassing the industry average of 10.7% [5] Group 3: Asset Utilization - The asset utilization ratio, or sales-to-total-assets (S/TA) ratio, is an important indicator of efficiency in growth investing [6] - Costco's S/TA ratio is 3.73, indicating that the company generates $3.73 in sales for every dollar in assets, significantly higher than the industry average of 1.46 [6] Group 4: Sales Growth - Sales growth is another key factor, with Costco expected to achieve a sales growth of 7.4% this year, compared to the industry average of 5.5% [7] Group 5: Earnings Estimate Revisions - Positive trends in earnings estimate revisions are correlated with stock price movements [8] - Costco has seen upward revisions in current-year earnings estimates, with a 0.1% increase in the Zacks Consensus Estimate over the past month [8] Group 6: Overall Positioning - Costco has earned a Growth Score of A and carries a Zacks Rank 2 due to positive earnings estimate revisions, positioning it well for outperformance [10]

Group 1: Momentum Investing Overview - Momentum investing involves following a stock's recent trend, with the aim of buying high and selling higher, capitalizing on established price movements [1] - The Zacks Momentum Style Score helps define momentum characteristics, with Costco (COST) currently holding a Momentum Style Score of B [2] - Style Scores complement the Zacks Rank system, which has a strong track record of outperforming the market; Costco has a Zacks Rank of 2 (Buy) [3] Group 2: Costco's Performance Metrics - Costco shares have increased by 6.52% over the past week, while the Zacks Retail - Discount Stores industry has decreased by 0.94% during the same period [5] - Over the past quarter, Costco shares have risen by 14.77%, and they are up 47.49% over the last year, significantly outperforming the S&P 500's gains of 1.43% and 21.95%, respectively [6] - The average 20-day trading volume for Costco is 1,876,515 shares, indicating a bullish sign when combined with rising stock prices [7] Group 3: Earnings Outlook - In the past two months, 6 earnings estimates for Costco have been revised upwards, while none have been revised downwards, increasing the consensus estimate from $17.91 to $18.03 [9] - For the next fiscal year, 7 estimates have moved upwards, with only 1 downward revision, indicating positive earnings momentum [9] Group 4: Conclusion - Given the positive performance metrics and earnings outlook, Costco is positioned as a 2 (Buy) stock with a Momentum Score of B, making it a strong candidate for near-term investment [11]

Core Insights - Costco's January sales results indicate strong performance, with comparable sales growth and increased net sales, which may influence the stock's future trajectory [1][3][10] Sales Performance - For the four weeks ended February 2, 2025, comparable sales in the U.S. grew by 9.2%, while Canada and Other International markets saw increases of 5.7% and 1.1% respectively, leading to a total company comparable sales rise of 7.5% [3] - Net sales for January reached $19.51 billion, up from $17.87 billion in the same period last year, reflecting a 9.2% increase [3] Membership and Revenue Model - Costco's membership-driven model is crucial for growth, with high renewal rates exceeding 90% in key markets, ensuring a reliable revenue stream [2][4] - Paid household memberships rose by 7.6%, and Executive Memberships, which account for 73.1% of worldwide sales, increased by 9.2% during the first quarter of fiscal 2025 [5] Operational Efficiency - The company has demonstrated strong comparable sales growth through both physical and digital platforms, supported by disciplined cost control and product mix optimization [6][7] - Costco's operational efficiencies and strong balance sheet provide a solid foundation for future growth [7] Valuation and Market Position - Costco's stock has increased by 47% over the past year, outperforming the industry average of 24.2%, indicating strong investor confidence [8] - The company's forward 12-month price-to-earnings ratio is 56.57, significantly higher than the industry average of 33.40 and the S&P 500's ratio of 22.54, reflecting its premium valuation [9][10] Earnings Estimates - Analysts have revised earnings per share estimates upward, with current estimates for the fiscal year at $18.03 and $19.69 for the next fiscal year, indicating expected year-over-year growth rates of 11.9% and 9.2% respectively [11]