Costco stock price forecast: what next for the retailer?

Costco had a good third quarter, but what’s going to happen next?

The Costco stock price forecast is looking cautiously optimistic for the year ahead, but sales growth may slow once the COVID-19 pandemic comes to an end.

The Costco stock price forecast has hit a bump in the road in recent weeks. Although the wholesale retailer thrived during the various lockdowns, achieving several consecutive quarters of growth, the corporation’s success came to a sudden halt in early March 2021 when its second-quarter results missed analysts’ expectations.

Net income over the all-important three-month period to 14 February, which includes Christmas sales, amounted to $951m, around $2.14 per diluted share. Not too bad on the face of it, but analysts had forecast $2.45.

The next quarter was much more positive for Costco. Third-quarter’s results released on 27 May reported earnings of $1.22bn, or $2.75 a share. This compared favourably with figures from a year earlier – $838 million in revenue, or $1.89 a share. Sales were also up, rising to $45.3 billion in the third quarter from $36.45 billion a year earlier. Same-store sales rose 21%, while online sales rose 41%.

The third-quarter results exceeded expectations – analysts had predicted earnings of $2.32 a share on sales of $44.7bn. The successful results immediately boosted the Costco share price, with the company closing 27 May at $387.50, up from $385.62 the night before. In fact, the peak wasn’t far from the all-time-high Costco stock price figure of $393.15, set in November 2020. However, the price soon fell back. Costco shares lost value overnight, opening at $383.81 before plummeting down to $378.56 just six minutes after the markets opened on 28 May.

One of the biggest challenges in formulating a Costco stock forecast is estimating the costs that the international wholesaler has faced during the pandemic. Costco increased wages for shop workers who have been keeping things running smoothly throughout the crisis to $16 an hour – a dollar more Amazon and Target are paying.

Costco’s CEO Craig Jelinek gave a bit more insight into the rationale behind the decision when he appeared before the Senate’s Budget Committee, saying:

“It takes a lot of time to interview, find employees, lot of labor involved just trying to hire individuals. We want people to stay with us.”

Jelinek believes that putting more money in pay packets could help reduce churn among employees – driving down recruitment costs.

Another factor that has been weighing heavily on Costco’s performance involves costs spent adapting stores so that customers could be kept safe during the pandemic.

Some analysts are worried about how long the company’s current growth will last, and what effect this will have on Costco’s stock price. COVID-19 has been a big driver in the retailer’s resilient performance in recent times, with many consumers buying in bulk in response to stay-at-home orders. As millions of people are vaccinated and economies start to reopen – along with non-essential retail outlets – spending habits may change dramatically.

The odd drop in sales might not be something to worry about when it comes to the Costco stock price forecast for 2021. Generally speaking, the stack-’em-high-sell-’em-cheap retailer has razor-thin profit margins and far fewer product lines than your typical supermarket. Costco’s money-spinner, however, is its mandatory membership scheme, which means that shoppers have to pay as much as $60 a year to use its stores. It’s a lucrative model for the company, and popular with shoppers – around 90% of Costco’s customers renewed their membership in 2019.

Costco stock predictions also need to consider the aggressive expansion of the company’s e-commerce offering – an area where analysts have long been worried that the company was lagging behind rivals. Proof of its successful transition to online retail was seen in Q2 results when digital sales rose 75.8% on the previous year. Looking at February specifically, e-commerce sales were up 91.1% in a year.

The ramped-up investment in digital channels hasn’t come at the expense of expanding its network of warehouses, something that could be a key tenet of upbeat Costco stock forecasts going forwards. Given the promise seen in its international division, it’ll be interesting to see whether the company decides to bolster its presence in foreign markets, such as China. At present, it has just one warehouse there, which enjoyed a roaring trade when it opened its doors in 2019. Further locations on the mainland could help spearhead additional growth.

Overall, analysts appear to be cautiously optimistic going forwards but with an expectation that quarterly growth will dip into single figures soon. Year-on-year comparisons could provide uncomfortable reading for investors, and that could lead to headwinds for Costco’s stock price.

Not everyone agrees, however. Some argue that there could be green shoots for Costco’s business as lockdowns end. And if lockdowns return, its business could be boosted as its members increasingly work from and eat at home, and purchase more food in bulk as a result. There’s everything to play for in the coming months as the world figures out what the new normal is.

What the experts say

So, what can we expect the Costco stock price forecast to be for the next 12 months? According to CNN Business, the high-end estimate predicts a 17% boost from the current share price of $387.17, meaning COST would hit $453 in a year’s time. By contrast, a more conservative median view anticipates that there will be a 7.2% rise to $4.15. On the other hand, the low-end Costco stock price forecast suggests that the company’s shares will fall by May 2022 – the worst-case scenario put forward by analysts is a 35.7% slide to $249.

Despite this, 19 analysts currently have a Buy rating on Costco stock. Four say it will Outperform the market, 10 have a Hold rating, while two say it will Underperform. No analysts are currently recommending selling the stock.

It’ll be interesting to see whether COST manages to return to the all-time Costco stock price high of $393.15, set in late November. With a fiercely loyal customer base that’s the envy of many retailers, Costco’s certainly shaping up to be one to watch in the months ahead.

Trade Costco Wholesale Corporation – COST shares price

Costco Wholesale Corporation
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546.52
Low: 545.88
High: 553.75

FAQs

We’re not sure if Costco stock will split this year, but it has been divided four times since it went public in 1985. It went two-for-one in 1991, three-for-two a year later, one-for-one in relation to Price Enterprises in 1994 and two-for-one in 2000.

Most predictions are positive, although some analysts think it could lose value over the next 12 months. It’s also worth noting Costco stock is trading at close to its all-time high. As ever, you should do your own research, and never invest more than you can afford to lose. Remember, shares can go down as well as up.

Yes, it does. It paid a dividend of $0.79 in May.

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