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Is Costco (COST) a Good Pick Ahead of its Q4 Earnings?

Costco Wholesale CorporationCOST is slated to report fourth-quarter fiscal 2015 results on Sep 29. The big question facing investors now is, whether the company will be able to continue with its positive earnings surprise streak in the quarter to be reported. In the trailing four quarters, Costco has outperformed the Zacks Consensus Estimate by an average of 6%. In the preceding quarter, the company had delivered a positive earnings surprise of 1.7%. Let's see how things are shaping up for this announcement.

Zacks Model Shows Earnings Beat Unlikely

Our proven model does not conclusively show that Costco is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. Costco has an Earnings ESP of -1.21% as the Most Accurate estimate stands at $1.64, while the Zacks Consensus Estimate is pegged at $1.66. Costco holds a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors Influencing this Quarter

Costco continues to be a dominant retail wholesaler, based on the breadth and quality of the merchandise it offers. A differentiated product range enables the company to provide an upscale shopping experience to its customers.

Despite these positives, what worries us is Costco's disappointing comparable-store sales (comps) performance. Comps dipped 2% in August following flat comps in July and a fall of 1% registered in June. While lower gasoline prices impacted U.S. comps, currency fluctuations adversely affected international comps. We also remain apprehensive in case the company adopts aggressive pricing to counter competition, gain market share and drive traffic, as this may depress margins in the quarter to be reported.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

BJ's Restaurants, Inc. BJRI has an Earnings ESP of +13.33% and a Zacks Rank #2 (Buy).

Walgreens Boots Alliance Inc. WBA has an Earnings ESP of +6.17% and a Zacks Rank #2.

Constellation Brands Inc. STZ has an Earnings ESP of +3.05% and a Zacks Rank #3 (Hold).

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BJ'S RESTAURANT (BJRI): Free Stock Analysis Report

COSTCO WHOLE CP (COST): Free Stock Analysis Report

CONSTELLATN BRD (STZ): Free Stock Analysis Report

WALGREENS BAI (WBA): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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