Costco is one of the largest membership warehouse clubs in the US, operating ~840 wholesale stores. Under the Costco Wholesale banner, the group serves more than 119 million cardholders in ~45 US states and ~10 other countries.
The group continues to deliver strong bottom-line growth despite a relatively weak economy, which is reflective of the company's resilience given its defensive nature. Merchandising expertise continue to drive customers' value perception and supports a treasure-hunt mentality that bodes well for visits and spending.
A confluence of technical indicators (the occurrence of various technical indicators pointing toward a similar outcome) suggest that Costco makes for a good investment opportunity at the moment.
The formation of a symmetrical triangle pattern in the recent uptrend (see the black converging trendlines on the main chart as well as the insert) indicates that the price is currently consolidating and may potentially break towards the upside.
The stock is currently testing its 200-day simple moving average, a key support level. A break above this level would suggest that the long-term trend is expected to remain bullish.
Upside momentum according to the Moving Average Convergence Divergence (MACD) indicator as well as a recent upward trend of the On-balance volume (OBV) indicator, supports our bullish bias.
Share Information
| Share code | COST |
|---|---|
| Industry | Consumer Staples |
| Market capatalisation (USD) | 222.3 billion |
| One year total return | -5.23% |
| Return year-to-date | 10.00% |
| Current price(USD) | 501.27 |
| 52 weeek high(USD) | 564.80 |
| 52 week low(USD) | 406.51 |
| Financial year end | August |
| Closing paragraph | Expect moderate price volatility going forward. |
Consensus Expectations (Bloomberg)
| FY22 | FY23E | FY24E | FY25E | |
|---|---|---|---|---|
| Headline Earnings per Share (USD) | 13.17 | 14.44 | 15.62 | 17.27 |
| Growth (%) | 9.64 | 8.19 | 10.54 | |
| Dividend Per Share (USD) | 3.38 | 3.57 | 3.96 | 4.09 |
| Growth (%) | 5.71 | 10.94 | 3.18 | |
| Forward PE (times) | 34.72 | 32.09 | 29.03 | |
| Forward Dividend Yield (%) | 0.71 | 0.79 | 0.82 | |
| Closing paragraph | Robust top-line growth is expected over the medium-term due to solid demand fundamentals. Easing macro-economic headwinds (particularly inflationary pressures on the supply chain) over the medium-term will be supportive of the company's operating margins and its earnings. | |||
Buy/Sell Rationale
Technical Analysis:
Fundamental view:
| Share Name and position |
MSFT - Profit Take (Close the position) |
PEP - Buy (Continue to hold) |
MA - Buy (Continue to Hold) |
|---|---|---|---|
| Entry | 276.20 | 178.01 | 354.44 |
| Current | 304.83 | 189.69 | 372.32 |
| Movement | 10.4% | 6.6% | 5.0% |
| Summary text | Exit the trade to reduce overall portfolio exposure. |
The recent earnings update on 25 April 2023 was a positive surprise. A stable bullish trend remains of interest.
Our profit target is $200.00, with a trailing stop-loss of $183.80. Exit the position around 10 May 2023. |
The stock price is trading above its 200-day simple moving average and is testing its 23.6% Fibonacci retracement level. Upside momentum supports the bullish trend.
Our profit target is $395.00, with a trailing stop-loss of $357. Exit the position around 26 May 2023. |
| Share Name and position |
KO - Buy (Continue to Hold) |
STZ - Buy (Continue to hold) |
ADBE - Buy (Continue to hold) |
|---|---|---|---|
| Entry | 61.85 | 228.16 | 373.40 |
| Current | 63.68 | 228.56 | 371.42 |
| Movement | 3.0% | 0.2% | -0.5% |
| Summary text |
The presence of a symmetrical triangle pattern during a prior uptrend remains key.
The stock remains above its 200-day simple moving average. Upside momentum supports the bullish trend. Our profit target is $67, with a trailing stop-loss of $61.80. Exit the position around 16 June 2023. |
The bullish megaphone pattern remains of interest. Upside momentum supports the bullish trend.
Our profit target is $252 with a trailing stop-loss of $218.50. Exit the position on 21 June 2023. |
The stock's price action symmetry is still a point of interest as it continues to stay just above its 200-day simple moving average. However, the momentum driving the increase has halted, which is a concern.
Our profit target is $440 with a trailing stop-loss at $350. Exit the position on 28 June 2023. |
