Costco Earnings Preview—$17 Expected Stock Price Move
Sep 26, 2023
While there are some question marks around the quarterly earnings report after the markets close, it's safe to say Costco (COST) is having a good year if we just look at the stock price gains in 2023. The warehouse store company opened 2023 at $458 and is currently sitting well above that mark at around $556 per share.
The stock is not too far off 2023 highs of $571.16, realized on July 27. With that said, the company has struggled to exceed earnings expectations, missing two of the last three EPS and revenue targets each quarter. Revenue misses have not been by much at all, but the company missed EPS estimates last quarter by 14.54%, as reported in its May 25 earnings call.
Looking at the quarterly balance sheet and income statement that we can see on tastytrade's trading platform, there hasn't been much movement at all over the past three quarters - stagnant results isn't necessarily a terrible thing, but it's not a great sign either if the company misses big this earnings report, or has a bleak outlook for the rest of the year.
Costco's expected move based on current implied volatility of the options cycle is +-$17.49, which is about 3% of the current stock price. That isn't an exceedingly high expectation for stock price movement on a percentage basis, compared to other household name stocks that we've seen report already.
With that said, the expected move is about a third of the expected move in the January 2024 options cycle, which is currently at +-$51.48. We'll see on Tuesday after the market closes if this expected move is light, or in line with the post-earnings movement.
With economic concerns sweeping the nation, Costco offers customers a way to save on food and living costs buying in bulk. Though interest rate hikes are slowing, plenty of inflation concerns persist. If you're thinking Costco is going to report a strong earnings quarter, or report a positive sentiment for the rest of 2023, I can't fault the stance—given all the economic worry—for a company that offers a way to consume goods in a less expensive way while still offering high quality products.
Costco is trading near the highs of the year, and that can add pressure to an earnings report where the market is looking for more to push the stock price higher. This could mean Costco reports earnings that miss expectations or project a bleak outlook for the year. Either could send the stock lower.
Mike Butler, tastylive director of market intelligence, has been in the markets and trading for a decade. He appears on Options Trading Concepts Live, airing Monday-Friday. @tradermikeyb
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