Costco Wholesale is recovering from a March tumble that shaved as much as 19% off the stock's value. Costco is the IBD Stock Of The Day, but shares are struggling with an important price level.
Costco stock is 11% off new highs amid a choppy recovery. Although the stock peaked Feb. 13 at 1,078.23, the selling picked up in early March, after the company announced February-quarter earnings that missed analysts' consensus estimate.
The retailer reported earnings of $4.02 per share, an increase of 8% year over year. Analysts had expected $4.09. Net sales rose 9.1% to $62.53 billion while same-store sales rose 6.8% — both slightly above estimates.
The company, which operates more than 900 warehouse stores, beat analysts' views for membership fee income, according to FactSet. E-commerce sales grew 25%, but merchandise margins shrank by 10 basis points.
At the time, the company was unsure about tariff impacts. But CFO Gary Millerchip told analysts in a conference call that shoppers remained resilient.
"We're not really seeing any change in what we've seen around our members over the last really few quarters," Millerchip said, according to a transcript via FactSet. "We believe that the member is probably as much focused now on quality, value and newness as they have been for quite some time. But they are still showing that willingness to spend, but they're being very choiceful where they're spending their dollars."
Costco Stock Rebounds As Sales Jump
Earlier this month, Costco reported net sales of $25.51 billion for the five weeks ended April 6, an 8.6% increase from a year earlier. Net sales for the first 31 weeks of the year rose 8.3% to $158.87 billion.
The increases prompted optimistic comments from UBS analysts.
"Despite concerns around consumer confidence and distractions from tariffs, (Costco) once again proved it is seeing strong momentum on both an absolute and relative basis," analyst Michael Lasser wrote in a note to clients. "Obviously, this indicates its share gains are continuing."
Costco's comparable-store sales excluding forex and fuel climbed 9.1%. That's higher than the 8.3% increase in February. "So, its strong momentum was steady in March. Plus, it likely gained meaningful market share in discretionary categories," the analyst added. "Importantly, we believe that Costco did not see evidence of consumers' pre-buying goods ahead of tariffs."
UBS has a buy rating on Costco stock with a 1,205 price target.
Last week, Costco raised its quarterly dividend from $1.16 to $1.30 per share, or $5.20 on an annualized basis. It is payable May 16 to shareholders of record on May 2.
Costco operates 623 stores in the U.S. and Puerto Rico, 109 in Canada, 41 in Mexico and others in Japan, Australia, China and other countries. The company also has e-commerce sites in the U.S., Canada, the U.K. and five other countries.
Costco stock has a 94 Composite Rating and a 91 Relative Strength Rating.
Stock Holding Up Well
Costco stock is forming a cup base with a 1,078.23 buy point, according to MarketSurge pattern recognition. Although the stock is 11% away from new highs, the relative strength line has been making new highs. That's a bullish indicator.
Shares fell back below the 50-day moving average Monday. It would be a good sign if they can regain the line and build a cushion above it.
It also would be favorable if shares can clear resistance around the 1,000 price level. Keep in mind, however, that the stock market is in a correction. Any stock purchase is extra risky until conditions improve.
Costco stock has been a bit more volatile since it gapped down March 3 following its most recent earnings report. Its 21-day average true range (ATR) is 3.47%.
The average true range is a metric available on IBD's MarketSurge that gauges the characteristic breadth of a stock's behavior. Stocks that tend to make large jumps or dives in daily action, the kind that can trigger sell rules and shake investors out of a stock, have a high ATR. Stocks that tend to make more incremental moves have lower ATRs. In the current, unpredictable market, IBD suggests stocks with ATRs of 3% or below.
