Retail giant Costco Wholesale Corporation (COST) and its subsidiaries operate membership warehouses in the United States, Puerto Rico, Canada, the United Kingdom, Mexico, Japan, Korea, Australia, Spain, France, Iceland, China, and Taiwan. It offers branded and private-label products in a range of merchandise categories.

On June 30, 2022, COST completed a purchase for $1.05 billion by a wholly-owned subsidiary of the 45% minority interest in Costco-Taiwan- a joint venture.

COST has lost 3.9% year-to-date to close the last trading session at $545.75. However, it has gained 21.9% over the past year and 4.4% over the past month. The stock is currently trading 10.9% below its 52-week high of $612.27, which it hit on April 7, 2022.

Here is what could shape COST’s performance in the near term:

Retail and Grocery Sales Rise Despite Soaring Inflation

Despite decades-high inflation, retails and grocery sales remained robust. According to Mastercard SpendingPulseTM, U.S. retail spending excluding automotive increased 11.2% year-over-year in July, while e-commerce sales were up 11.7% year-over-year.

On the other hand, online grocery sales surged 8.3% to $7.80 billion in July. In addition, COST reported net sales of $16.85 billion for the month of July, up 10.8% year-over-year.

Solid Financials

COST’s total revenue came in at $52.60 billion for the third quarter ended May 8, 2022, up 16.2% year-over-year. Its net sales came in at $51.61 billion, up 16.3% year-over-year. Also, its operating income came in at $1.79 billion, up 7.7% year-over-year.

Furthermore, its net income came in at $1.35 billion, up 10.9% year-over-year, while its EPS came in at $3.04, up 10.5% year-over-year. 

Favorable Analyst Expectations

Analysts expect COST’s revenue to increase 15.5% year-over-year in 2022 and 8.6% year-over-year in 2023. Its EPS is expected to increase 17.9% year-over-year in 2022 and 11.1% year-over-year in 2023. The stock has surpassed EPS estimates in each of the trailing four quarters.

Of the 18 Wall Street analysts that have rated COST, 14 rated it Buy, while four rated it Hold. Moreover, Wall Street analysts expect the stock to hit $567.17 in the near term, indicating a potential upside of 3.9%.

POWR Ratings Reflect Promising Outlook

COST has an overall rating of B, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

It has a B grade for Growth, consistent with its solid financials in the latest reported quarter.

The stock also has a B grade for Sentiment, in sync with favorable analysts’ sentiments.

In the 38-stock Grocery/Big Box Retailers industry, COST is ranked #24. The industry is rated A.

Click here for the additional POWR Ratings for COST (Momentum, Stability, and Quality).

View all the top stocks in the Grocery/Big Box Retailers industry here.

Bottom Line

Despite the soaring inflation, retail spending remained robust, providing support to the company. Moreover, its revenue and EPS have increased at 13.3% and 16% CAGRs over the past three years. And analysts now expect its EPS to increase 13.7% per annum for the next five years. Considering COST’s solid fundamentals, I think its hefty price tag is well justified.

How Does Costco Wholesale Corporation (COST) Stack Up Against its Peers?

While COST has an overall POWR Rating of B, one might consider looking at its industry peers Ingles Markets, Incorporated (IMKTA), The Kroger Co. (KR), and Casey’s General Stores, Inc. (CASY), which have an overall A (Strong Buy) rating, and Sprouts Farmers Market, Inc. (SFM), which has an overall B (Buy) rating.

COST shares were trading at $550.97 per share on Tuesday morning, up $5.22 (+0.96%). Year-to-date, COST has declined -2.47%, versus a -9.25% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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