Previewing the Q3 Earnings Season

Costco's Quarterly Performance - Costco's shares declined following a mixed quarterly report, with a slight revenue miss but a strong bottom-line beat [1] - Quarterly earnings increased by +6.1% on +1% higher revenues, with comparable same-store sales up +5.3% in the US and +5.5% in Canada [1] - Discretionary categories like jewelry, furniture, and tires saw double-digit gains, while digital comps surged +19.5% [1] Costco's Valuation and Market Performance - Costco's stock pullback is attributed to its premium valuation after a +34.7% year-to-date gain, outperforming the Zacks Retail sector (+20.3%) and the S&P 500 (+20.5%) [2] - The stock trades at 50.8X forward 12-month EPS estimates, significantly higher than its 5-year median of 35.9X [2] Q3 Earnings Season Overview - Costco's fiscal Q4 results are included in the Q3 earnings season tally, alongside companies like FedEx and Oracle [3] - 14 S&P 500 members have reported Q3 results, with earnings up +26.8% year-over-year on +3.4% higher revenues [3] - 71.4% of companies beat EPS estimates, and 78.6% beat revenue estimates [3] S&P 500 Earnings Trends - S&P 500 Q3 earnings are expected to grow +3.34% year-over-year on +4.5% higher revenues, following +10% earnings growth in the previous quarter [7] - Earnings estimates for Q3 2024 have been revised down more significantly than in recent periods, with 14 out of 16 Zacks sectors seeing downward revisions [8] - Despite negative revisions, aggregate earnings for Q3 are expected to reach a new all-time quarterly record [9] Tech Sector and Magnificent 7 Performance - The Tech sector is expected to see Q3 earnings growth of +11.6% on +10.7% higher revenues [12] - The Magnificent 7 (Mag 7) companies are expected to contribute +17.2% earnings growth and +13.6% revenue growth in Q3, accounting for 21.4% of all S&P 500 earnings [10][11] - Excluding the Mag 7, S&P 500 earnings would be flat year-over-year [11] Long-Term Earnings Outlook - S&P 500 earnings are expected to grow +7.7% in 2024, improving to +9.6% excluding the Energy sector [10] - Double-digit earnings growth is projected for 2025 and 2026, with the Tech sector maintaining robust growth momentum [9][13]