Is Costco (COST) Set To Beat Earnings Estimates?

Multibillion-dollar big-box stores might prove to be among the only retailers that can compete against Amazon (NASDAQ:AMZN) as it slowly undercuts smaller online sellers and brick-and-mortar businesses.

With that said, Walmart (NYSE:WMT) and Target (NYSE:TGT) have had to dig deep as they fight against the e-commerce powerhouse by revamping stores, adding new trendy lines of apparel and home décor, and maybe most importantly, bolstering their online sales and delivery capabilities.

Yet, Walmart saw its quarterly e-commerce sales growth slow recently, and Target investors must wait to see if the company’s upbeat guidance will be met next week. Fellow big-box giant Costco (NASDAQ:COST) faces similar challenges as more consumers buy consumer packaged goods and groceries online.

Luckily for Costco investors, the retailer has indeed expanded its e-commerce sales in a big way. Last quarter—Q1 2018—the company’s revenues climbed 13.3% to reach $31.12 billion, with Costco’s e-commerce sales soaring 43.5%.

Now investors will want to know what to expect from Costco in it upcoming second quarter. The company’s overall Q2 sales are projected to climb by nearly 10% year over year. On top of that, Costco’s earnings are expected to surge by nearly 24% to reach $1.45 per share.

Costco has also topped earnings estimates in each of the trailing three quarters. But investors still need to gauge if COST is projected to top earnings estimates once again this quarter.

Luckily, Zacks Premium customers can utilize the Earnings ESP Screener in order to search for stocks that are expected to beat. Zacks Earnings ESP (Expected Surprise Prediction) looks to find earnings surprises by focusing on the most recent analyst estimates.

This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.

A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.

Costco’s current Earnings ESP of 4.61% means earnings estimates have been higher directly ahead of the big-box retailer’s upcoming Q2 results. When paired with Costco’s current standing as a Zacks Rank #3 (Hold), investors should consider the stock as one that seems likely to top earnings estimates.

Costco is set to report its second quarter fiscal 2018 earnings results after the market closes on Wednesday, March 7.

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