Tuesday's Market Minute: Previewing Costco (COST) Earnings

Costco COST reports its fourth quarter of 2023 after the bell today. Zacks expects the company to report EPS of $4.72 on revenue of $78.56 billion. The stock has had a strong year thus far, up over 20% YTD and over 1% this month. Costco gives monthly updates on its sales figures, so a major revenue surprise is unlikely. However, investors will be watching whether Costco announces a membership cost bump – it last raised fees in 2017. Keep in mind that comp store sales have been decelerating this year, and consumers are increasingly price conscious.

Costco has its hand in healthcare, just like other major grocery retailers, and yesterday it announced a partnership with health care marketplace Sesame to offer discounts for its members. Sesame is a telehealth company founded in 2018. Costco has already offered services like eye exams in its stores, but with Amazon AMZN making inroads into healthcare and Target’s TGT partnership with CVS Health CVS, this looks like a competitive move.

The buzz on the Street is still A.I., and even groceries can get in on it – Telsey Advisory analyst Joseph Feldman, who has an Outperform rating and $575 price target on Costco, is bullish on technological transformation for the sector. He cites ideas like supply chain automation to smart carts and biometric checkouts to streamline shopping and create a better experience. Anecdotally from the self-checkout line at Target, I do not have high hopes of the latter ‘improvements’ justifying their cost investments.

On the bright side, Evercore ISI says that Costco’s sales have improved through the summer, and visits were higher year over year. Consumers could be justifying the initial membership fee to access the bulk goods Costco is famous for, leading to a strong quarter.

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