The Most Important Earnings Report This Week: COST

COST Earnings

I don’t know why I do it. I go to Costco Wholesale (NASDAQ:COST) once a year and sign up for a membership. Then, I end up spending so much money I have to question my finance education. Why exactly do I need 16 pounds of chicken? Why am I purchasing enough blackberries to start my own soccer team? Is it rational that I now have enough A1 Sauce to open my steakhouse here in Southwestern Florida? Why do I have so many batteries?

I’m convinced that Costco is a place where people prepare for the end of the world. Given that we just had a massive pandemic and fear of societal breakdown, Costco is where paranoia meets the wallet. What if there’s another emergency like the one we just had? Better buy enough salmon cakes to get me through 2022. Yeah, I might end up throwing out more than half the stuff I’ve bought. But at least I was prepared, is what I’ll tell myself in 12 months.

Yes, there are benefits to a Costco Membership. But with a family of three people, I’m not sure that it’s pretty for me. I’ll probably end up visiting there to pick up a few small things now and then. And if I do need an 82-inch television, then I certainly will visit there.

The most important takeaway from my visit two weeks ago was this: The 30-minute line to haul away $600 in meats speaks volumes to this company’s success. Costco was a quintessential COVID stock. Shares never really faced much of a selloff last year. And shares are back in focus as the firm reports its earnings on Thursday.

At the end of the quarter, the firm had 108.3 million card members. That figure represented a 1.2 million increase from the previous quarter. And revenue is expected to rise for the quarter ahead. Wall Street expects that COST will report revenue of $43.63 billion for the quarter and pegs earnings per share at $2.32. These figures would represent year-over-year gains of 17.5% on revenue and 22.7% on profits. Not too shabby. And just what I’m looking for in a company.

Costco is a stock that can be a cornerstone of a portfolio. Here’s the issue, however. The stock is trading at a price-to-earnings ratio of 39.2. That is the highest level we’ve seen the stock trade in more than a decade. This means that the company’s rosy outlook could be “priced in” already.

I want to see what the executives have in-store during their call. And I want to see if there is a path toward even greater profitability. COST stock currently has a price target on Wall Street of roughly $400. Rather than buy the stock right now, there is an opportunity to sell puts on this stock at an incredible value. I think a pullback is possible, and I want to name my price for COST heading into the summer.

Once the firm reports earnings, I’ll walk you through the right way to do what is called a “cash-secured put.” If COST is a bit pricy for you, other stocks can incorporate this strategy.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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