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Costco stock forecast: Can the uptrend continue?

By Alejandro Arrieche

Edited by Alexandra Pankratyeva

13:46, 1 June 2022

Costco stock forecast: Can the uptrend continue? Costco Wholesale storefront. Costco Wholesale Corporation is largest membership-only warehouse club in US.
Costco stock forecast: Can the uptrend continue? Photo: Juan Llauro / Shutterstock.com

The Costco (COST) stock market price has been rising following the release of the company’s financial results covering the third quarter of its 2022 fiscal year as inflation in the United States appears to be benefitting the wholesaler’s top-line performance.

During the three months ended 8 May, revenues surged 16.3% compared to the same period a year ago, while membership fees experienced a 9.2% year-on-year increase.

Costco’s positive top-line performance in the US and Canada spearheaded this increase – comparable sales in those regions experienced a 10.7% and 12.8% year-on-year jump, respectively, excluding the impact of higher fuel prices and foreign exchange rates.

According to the management team, sales growth was not primarily driven by higher fuel prices as other categories, including confectionery, tyres, toys, jewellery, and apparel also performed positively during the quarter.

Market participants reacted favourably to the report, as indicated by the 6% jump Costco stock experienced following the release of its quarterly results.

What could be expected for what remains of the year and beyond? In this article, we analyse the latest Costco stock news along with the price action and fundamentals to outline plausible scenarios for the future.

Costco stock analysis: Technical views and price drivers

Costco (COST) technical analysis

The Costco stock value has experienced a 17% decline so far this year (as of 31 May). This decline has been partially cushioned by COST’s recent 5-day winning streak, but the stock is tagging a relevant area of resistance that may threaten to pause this recent rally.

Moreover, the stock is trading 7.7% below its 200-day simple moving average of 509.96 and 23.1% below its 52-week high.

Trading volumes in the past couple of days are nearly double the 10-day average and momentum indicators are showing signs of a recovery.

In this regard, the Relative Strength Index (RSI) is on an uptrend at 43, while the Moving Average Convergence Divergence (MACD) has just crossed above the signal line.

It is still too early to tell if this rally leads to a sustained recovery in the price of COST stock in the following weeks or months. For now, the most relevant event that may favour a positive view would be the filling of the open gap shown in the chart. 

According to the technical analysis, this might occur if COST rises above the $480 level, resulting in a 2% upside potential in the short term.

Costco fundamental analysis: Latest earnings

Costco reported its financial results covering the third quarter of the 2022 fiscal year on 26 May. During the three months ended 8 May, Costco reported net sales of $51.61bn, resulting in a 16% year-on-year jump. Membership fees ended at $984m, compared to $901m for the same period a year ago. 

Strong comparable sales growth in the US (16.6%) and Canada (15.2%) lifted the company’s top-line results. Worldwide store traffic increased 6.8% from a year ago.

However, gross margins experienced a 100 basis points year-on-year decline at 11.9%, and this translated into a 27 basis point decline in the operating margin.

Costco brought in $1.35bn in net profits, resulting in an 11% year-on-year jump, while earnings per share ended the quarter at $3.04 compared to the $2.75 reported in Q3 2021.

The company’s long-term debt stood at $6.51bn, while cash, equivalents and short-term investments amounted to $11.83bn.

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The Board of Directors recently approved an $0.11 increase in the company’s quarterly dividend, which now stands at $0.90 per quarter. This results in a forward dividend yield of 0.76%.

Costco (COST) five-year performance

Costco stock projections: Analyst sentiment

Is Costco stock a ‘buy’, ‘sell’ or ‘hold’? The consensus recommendation for Costco stock, as per data compiled by MarketBeat, was bullish (as of 31 May), with 20 of 25 analysts rating the stock a ‘buy’ and five recommending ‘hold’.

Meanwhile, the average Costco stock price target was set at $568.56 a share, resulting in a 20% upside potential based on the previous closing price of $470.76.

The highest 12-month Costco share price forecast from analysts was $678 and the lowest $423.

Notably, several analysts, including Credit Suisse, Citigroup and Deutsche Bank  lowered their price targets for COST following the release of the company’s latest quarterly report, but there were no changes to their recommendations.

Costco (COST) analyst ratings and price targets

Some analysts believe that the inventory build-ups that occurred in the previous quarters amid the ongoing supply chain crisis may lead to sharp discounts offered in the next few months to reduce operating leverage.

"You will see some discounting and it will be more than last year but ultimately it will be held back by the still high cost of sourcing inventories and labour”, stated Jason Benowitz from The Roosevelt Investment Group. 

In regards to this concern, Costco’s Senior VP of Finance and Investor Relations commented the following during the latest earnings call: “We feel good about our current inventory levels. The additional inventory we're carrying is in the right departments, and they feel good about our ability to move it.” 

Meanwhile, analyst Zain Akbari from Morningstar stated: “Our long-term forecast calls for mid- to high-single-digit annual percentage revenue growth and 4% operating margins over the next decade. With the shares trading near their valuation, we suggest investors seek more of a margin of safety.” 

Costco stock forecast: Targets for 2022-2025

Several algorithm-based forecasting services gave longer-term Costco stock predictions for 2022 and beyond, as of 31 May.

Wallet Investor had a bearish short-term outlook for the Costco future stock price, based on an analysis of its technical indicators. It expected the stock to plunge to $413.430 on 10 June. However, it predicted that the stock could rebound and end the year at $537.166.

As for its baseline Costco stock forecast 2025, Wallet Investor predicted that the price could rise further to $820.937. Although it didn’t provide price targets for 2030, its 5 year price prediction expected COST to hit $940.943 in May 2027.

Meanwhile, GovCapital also expected that the price of Costco stock could end the year with gains. Its forecast saw COST rising to $604.693 by the end of 2022.

Moving forward, the service estimated the stock could reach $937.441 by the end of 2023, surpass $1,000 and hit $1,354.770 by the end of 2024 and close 2025 at $1,846.773. GovCapital anticipated COST to rise as high as $2,601.855 5 years from now. 

None of the opinions or forecasts shared in this article should be considered a recommendation to buy or sell Costco stock

Algorithm-based predictions use Costco historical stock price to estimate its future value. Actual results can deviate significantly from these forecasts. Past results are not indicative of future performance. Investors are encouraged to perform their own research before making any trading decision.

FAQs

Is Costco a good stock to buy?

According to the views of Wall Street analysts' compiled by MarketBeat, as of 31 May, Costco stock could be a ‘buy’. Forecasting tools Wallet Investor and GovCapital also gave bullish predictions for Costco.

Analysts’ forecasts and algorithm-based price targets can be wrong. They are based on the COST stock historical price performance. Always conduct your own analysis before making any trading decision. And never invest money that you cannot afford to lose.

Will Costco stock price go up or down?

We do not know.  But, according to estimates from the two third-party forecasting services, as of 31 May, the price of Costco stock could rise in the next two to five years.

Where will Costco stock be in 5 years?

We do not know. But, according to estimates from GovCapital (as of 31 May), the price of Costco stock could exceed $2,000 5 years from now.

Why has the Costco stock price been going up?

The price of Costco stock has been rising following the release of the firm’s financial results covering the third quarter of the 2022 fiscal year as top-line performance exceeded the market’s expectations.

When will Costco stock split?

Costco has not announced any stock splits lately. 

Does Costco stock pay dividends?

Yes. The Board of Directors of Costco recently approved an increase of its quarterly dividend to $0.90 a share. This took the company’s annualised dividend to $3.60.

Markets in this article

COST
Costco
843.11 USD
-4.35 -0.510%

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