Investing

Earnings Previews: Costco, FedEx

The three major U.S. equity indexes closed lower Tuesday. The Dow Jones industrials ended the day down 1.01%, the S&P 500 closed lower by 1.13% and the Nasdaq lost 0.95%. All 11 sectors ended the day with losses, ranging from down 2.6% (real estate) to 0.5% (consumer staples). The three major indexes were trading higher shortly after Wednesday’s opening bell.

The Federal Reserve’s pending interest rate announcement is expected to push rates up by 0.75% to a new range of 3.00% to 3.25%. The yield curve remains inverted, as two-year Treasures now pay a coupon of around 3.95%, compared to 10-year notes paying 3.54%.

After markets closed Tuesday, Aurora Cannabis posted quarterly results that were better than expected, but shares traded down about 8.6% Wednesday morning on a price target cut from Piper Sandler.

Stitch Fix missed on both the top and bottom lines and issued downside guidance for the current quarter. Shares traded down about 5.4% early Wednesday.


Before markets opened on Wednesday morning, General Mills reported better than expected results on both the top and bottom lines. The packaged food giant also boosted fiscal 2023 guidance. Shares traded up more than 3.5%.

After markets close Wednesday and before they reopen on Thursday, Darden Restaurants, KB Home, Lennar and Trip.com will report quarterly results.

Here is a look at two companies reporting quarterly results after Thursday’s closing bell.

Costco

Shares of Costco Wholesale Corp. (NASDAQ: COST) have added about 10.7% over the past 12 months, including a drop of more than 31% between early April and mid-May. Since that 52-week low in May, shares have added about 20%. Through all those recent fluctuations, though, month-over-month same-store sales have been rising by at least 10% since June of 2020. Profits have been steady, but one issue to watch for Thursday afternoon is whether the company raises membership fees, the source of about two-thirds of Costco’s net income.

Analysts are positive on the stock, with 23 of 33 having a Buy or Strong Buy rating. The other 10 rate the shares at Hold. At a recent price of around $499.50 a share, the upside based on a median price target of $587.00 is 17.5%. At the high price target of $678.00, the upside potential is 35.7%.

Fourth-quarter revenue is forecast at $71.99 billion, which would be up 36.9% sequentially and by 14.9% year over year. Adjusted earnings per share (EPS) are forecast at $4.17, up 31.5% sequentially and 6.9% higher year over year. For the full 2022 fiscal year ended in August, current estimates call for EPS of $13.15, up 18.6%, on sales of $226.4 billion, up 15.6%.

Costco stock trades at 38.0 times expected 2022 EPS, 34.2 times estimated 2023 earnings of $14.62 and 31.0 times estimated 2024 earnings of $16.10 per share. The stock’s 52-week trading range is $406.51 to $612.27. The company pays an annual dividend of $3.60 (yield of 0.71%). Total shareholder return for the past year was about 11.4%.

FedEx

After warning last week that quarterly earnings would be hammered by the global economic slowdown, FedEx Corp. (NYSE: FDX) shares plunged by 20%. The stock put up its 52-week low on the day of the announcement, but the share price had fallen by about the same amount between January and April of this year. Higher fuel costs and concerns about the company’s poor operational execution could weigh on the stock for the rest of the year. The larger question is whether FedEx is a one-off or the canary in the coal mine.

Analysts are wavering on the shares, with 14 of 29 brokerages covering the stock having Buy or Strong Buy ratings. The other 15 rate the shares at Hold. At a share price of around $157.40, the upside potential based on a median price target of $230.00 is 46.1%. At the high price target of $320.00, the upside potential is 103.3%.

The consensus first-quarter revenue estimate is $23.78 billion, down by 2.5% sequentially but up 8.1% year over year. The company last week announced preliminary adjusted EPS of $3.34, down 21.3% year over year. For the full 2023 fiscal year ending in May, analysts are currently expecting EPS of $14.82, down 28.1%, on sales of $95.2 billion, up 1.8%.

FedEx stock trades at 10.6 times expected 2023 EPS, 7.7 times estimated 2024 earnings of $20.45 and 6.3 times estimated 2025 earnings of $25.13 per share. The stock’s 52-week range is $155.00 to $266.79. FedEx pays an annual dividend of $4.60 (yield of 2.9%). Total shareholder return for the past year was a negative 36.2%.

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