We expect Costco Wholesale Corporation ( COST ) to beat expectations when it reports fourth-quarter fiscal 2014 results on Oct 8. Last quarter, the company posted a negative surprise of 1.8%.
Why a Likely Positive Surprise?
Our proven model shows that Costco is likely to beat earnings estimate this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 or 2 or 3 for this to happen. Costco has the right combination of the two key components.
Zacks ESP: Costco currently has an Earnings ESP of +0.66%. This is because the Most Accurate estimate stands at $1.53, while the Zacks Consensus Estimate is pegged at $1.52.
Zacks Rank: Costco carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank of #1, #2 and #3 have a significantly higher chance of beating earnings estimates. The Sell-rated stocks (Rank #4 and 5) should never be considered going into an earnings announcement.
What is Driving the Better-than-Expected Earnings?
Costco's strategy of selling products at heavily discounted prices, consistent comparable-store sales growth and healthy membership renewal rate are the factors driving better-than-expected results. We believe that Costco continues to be a dominant retail wholesaler based on the breadth and quality of merchandise offered.
Other Stocks that Warrant a Look
Here are some other companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Abercrombie & Fitch Co. ( ANF ) has an Earnings ESP of +5.63% and a Zacks Rank #2 (Buy).
Chipotle Mexican Grill, Inc. ( CMG ) has an Earnings ESP of +1.30% and a Zacks Rank #2.
The Home Depot, Inc. ( HD ) has an Earnings ESP of +0.89% and a Zacks Rank #2.
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