Costco's (COST) Q3 Earnings: Will The Stock Disappoint?

Costco Wholesale Corporation (NASDAQ:COST) is slated to report third-quarter fiscal 2016 results on May 25. The big question facing investors now is, whether the company will be able to deliver a positive earnings surprise in the quarter to be reported. In the trailing four quarters, Costco underperformed the Zacks Consensus Estimate by an average of 1%. In the preceding two quarters, the company delivered a negative earnings surprise of 3.1% and 6.8%, respectively. Let’s see how things are shaping up for this announcement.

Zacks Model Shows Unlikely Earnings Beat

Our proven model does not conclusively show that Costco is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. Costco has an Earnings ESP of -1.64% as the Most Accurate estimate stands at $1.20, while the Zacks Consensus Estimate is pegged at $1.22. Costco’s Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

Factors Influencing this Quarter

Costco continues to be one of the dominant retail wholesalers based on its breadth and quality of merchandise offered. A differentiated product range enables the company to ensure an upscale shopping experience for its members, resulting in market share gains. Moreover, Costco continues to maintain a healthy membership renewal rate. The company is also gradually expanding its e-commerce capabilities in the U.S., Canada, U.K., Mexico, Taiwan and Korea.

However, investors are worried about Costco’s comparable-store sales (comps) performance in the quarter to be reported. During the second quarter of fiscal 2016, Costco’s comps inched up 1%, reflecting a 3% increase at U.S. locations, partially offset by a 7% fall in locations at Canada and a 3% drop at Other International outlets. While lower gasoline prices impacted U.S. comps, currency fluctuations adversely affected international comps. Costco witnessed flat comps for the month of April, following an increase of 1% in March, and flat comps in both February and January.

COSTCO WHOLE CP Price, Consensus and EPS Surprise

COSTCO WHOLE CP Price, Consensus and EPS Surprise | COSTCO WHOLE CP Quote

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

TiVo Inc. (NASDAQ:TIVO) has an Earnings ESP of +25.00% and a Zacks Rank #1 (Strong Buy).

Best Buy Co., Inc. (NYSE:BBY) has an Earnings ESP of +2.86% and a Zacks Rank #2 (Buy).

DSW Inc. (NYSE:DSW) has an Earnings ESP of +2.17% and a Zacks Rank #3.