Q4 Preview: Costco (COST) May Top as Membership Gains Remain Healthy

Costco Wholesale (Nasdaq: COST) ended the session Tuesday up slightly, heading into its fourth-quarter earnings report.

Before the market opens tomorrow, Costco is expected to report earnings of $1.10 per share on revenue of $27.78 billion. Earnings would be a 50 percent sequential gain, and 13.4 improvement from 97 cents per share reported in the same period last year.

Costco shares fell 4.5 percent to $78.54 at the end of August. The stock is up 0.7 percent since then, and up 14.1 percent on the year.

At $81.65, Costco is trading for 21.3 times expected fiscal 2012 earnings, compared with 10.8 times for Wal-mart (NYSE: WMT) and 11.4 times for Target (NYSE: TGT).

Data from Bloomberg has 14 analyst with a Buy rating on Costco, 11 at Hold, and 2 with a Sell. The Street price target average is $81.50, with a low of $55 and high of $97. Costco has traded in a range of $61.90 to $86.34 over the last 52-weeks, with the high coming as recently as September 20th.

Analyst Comments

• Goldman Sachs recently lowered it's earnings expectations in the retail sector, Costco expected fiscal 2011 earnings nudged from $3.34 to $3.32. Goldman made the move "to reflect moderating foreign exchange tailwinds, primarily from Canada and Mexico. In its first three quarters this year, COST has seen a $0.06 benefit to EPS from favorable FX. In our new estimates, we assume zero benefit going forward, though we estimate current exchange rates could pose a $0.06 drag on EPS if sustained."
  
  
• Deutsche Bank is modeling for earnings of $1.10 per share with comps up about 6 percent. Deutsche sees management announcing plans for 30 new clubs, of which more than half will reside outside the U.S. Deutsche comments, "Equally important, membership trends have remained healthy and we expect renewals to be at least 89%...We forecast a 25 bp GPM decline for 4Q (an improvement from 39 bp drop in 3Q) based on 3 factors: (1) core will be a drag of 15 bps (core merchandising margin up 15 bps, offset by a negative gas mix impact of 30 bps); (2) ancillary business a positive 6 bps, reversing trends seen YTD as gas prices retreated early in the Summer; & (3) continued drag from LIFO (charge of 15 bps; was a 25 bp hit last qtr.)."

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out Costco's past performace at Streetinsider's Costco Income Statement.

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