Costco Earnings Preview: $1,000 Stock Ahead?
Costco Earnings Preview: $1,000 Stock Ahead?
By:Mike Butler
Shares are soaring even after the company missed estimates twice in four quarters
- Costco will report quarterly earnings after the stock market closes on Thursday.
- The club is expected to report an earnings-per-share (EPS) of $3.79 on $62.05 billion in revenue.
- Those figures are significantly lower than last quarter when the company missed estimates.
- Still, the stock is skyrocketing to all time highs and has a chance to break $1,000 this week.
- A stock split announcement is certainly in the cards this week, too.
Costco (COST) has a chance of breaking $1,000 per share this week, ahead or after the earnings announcement on Thursday. The popular warehouse store is expected to announce an EPS of $3.79 on $62.05 billion in revenue. Even though earnings reports have been spotty for Costco, missing revenue estimates 50% of the time the past four quarters, the stock is on a tear.
COST stock opened 2024 at $655.58 and hasn't looked back. It currently sits around $985 per share, just shy of the monumental $1,000 mark. In a year when investors worried about inflation and interest rates, Costco has flourished as a low-cost, big-quantity marketplace. While the stock price has done well this year, estimates of earnings per share (EPS) and revenue are much lower after a revenue miss last quarter.
While Costco certainly dominates its market in the United States, its international footprint is growing quickly, according to last quarter's press release.
"Costco currently operates 891 warehouses,”the release said, “including 614 in the United States and Puerto Rico, 108 in Canada, 40 in Mexico, 35 in Japan, 29 in the United Kingdom, 19 in Korea, 15 in Australia, 14 in Taiwan, seven in China, five in Spain, two in France, and one each in Iceland, New Zealand and Sweden. Costco also operates e-commerce sites in the U.S., Canada, the U.K., Mexico, Korea, Taiwan, Japan and Australia."
With Costco stock at such a high price these days, one might assume the implied volatility for this earnings announcement would be high as well—but that isn't the case. It's actually surprisingly low at only 3% of the notional value of the stock price. Most company earnings land between 5%-10% of the stock price.
Looking at the implied volatility of the weekly options cycle, that contains this week's earnings announcement, we can see a +/- $34.12 stock price expected move. This is very low relative to the stock price and expected activity around the stock this week.
We can see a +/- $93.11 stock price expected move through the March 2025 options cycle, telling us this earnings announcement isn't projected to bring much movement to the stock price. With that said, we could always see a big move after an earnings surprise, so it's important to take that into consideration.
Bullish on COST stock for earnings
If you're bullish on Costco for earnings, you're looking for a righting of the ship in the EPS and revenue department. With the stock surging this year, Costco needs a strong performance report and a great outlook for 2025 if we're going to see the stock price exceed $1,000 on Friday. Lowered expectations could make estimates easier to hit, but time will tell. If the company announces a stock split, this could bring buzz to the stock as well.
Bearish on COST stock for earnings
If you're bearish on Costco for earnings, you're looking for more turbulence with performance. Missing estimates is one thing, but missing again after estimates are reduced is another. The lack of implied volatility around this earnings announcement doesn't necessarily bode well for a big earnings upset, but crazier things have happened.
Tune in to Options Trading Concepts Live on Thursday at 11 a.m. CDT for a look at options trading strategies ahead of COST earnings.
Mike Butler, tastylive director of market intelligence, has been in the markets and trading for a decade. He appears on Options Trading Concepts Live, airing Monday-Friday. @tradermikeyb
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