The flood of corporate earnings reports has dwindled to a trickle, but there are still a few stragglers waiting in the wings that are well worth paying attention to.
For instance, discount retailer Costco Wholesale Corporation (COST) is slated to release its fiscal fourth-quarter earnings report next week on Tuesday, Sept. 29. The Costco stock price has stagnated in recent weeks, but a strong showing on Tuesday could provide the impetus COST stock needs to breakout once again.
By the numbers, Costco is is expected to report a quarterly profit of $1.66 per share, up from earnings of $1.58 per share a year ago. Meanwhile, revenue is seen advancing 2.3% year-over-year to $36.3 billion.
Historically, Costco has been impressive in the earnings confessional, topping Wall Street’s estimates in each of the past four quarters. As such, it should come as no surprise that EarningsWhisper.com reports that the fourth-quarter whisper number for Costco rests at $1.68 per share — two cents above the consensus estimate.
Analyst optimism extends outside of earnings forecasts, however. According to data from Thomson/First Call, COST stock has attracted 20 “buy” ratings, nine “holds,” and no “sell” ratings. At the same time, though, the 12-month consensus price target of $158 represents only an 9% premium to the current price of COST stock.
Turning to the options pits, short-term traders are largely bullish on Costco stock’s prospects. Currently, the September/October put/call open interest ratio arrives at a somewhat bullish reading of 0.68. This ratio rises only modestly to 0.72 when focusing solely on the weekly September 25 series.
Click to EnlargeOverall, weekly September 25 series implieds are pricing in a potential post earnings move of about 3% for Costco stock. This places the upper bound near $150, while the lower bound lies at $141.
A rally could send COST into all-time high territory, as a breakout above the psychological $150 level could be significant, while a decline would send the stock down for a test of support in the $140 region.
2 Trades for Costco Stock
Call Spread: While the technicals point to overhead resistance, there is plenty of bullish sentiment to help drive Costco stock higher. Traders looking to side with the bulls ahead of Costco earnings might want to consider an October $146/$150 bull call spread.
At last check, this spread was offered at $1.64, or $164 per pair of contracts. Breakeven lies at $147.64, while a maximum profit of $2.36, or $236 per pair of contracts, is possible if COST stock closes at or above $150 when October options expire.
Put Spread: With Costco stock trading in overbought territory, and the market in something of a flux, some traders may want to take a more contrarian short-term stance. Along those lines, an October $140/$145 bear put spread has plenty of potential.
At last check, this spread was offered at $1.50, or $150 per pair of contracts. Breakeven lies at $143.50, while a maximum profit of $3.50, or $350 per pair of contracts, is possible if Costco stock closes at or below $140 when October options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
