We expect Costco Wholesale Corporation ( COST ) to beat expectations when it reports first-quarter fiscal 2015 results on Dec 10. In the last quarter, it had posted a positive surprise of 4%. Let's see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Costco is likely to beat earnings estimates this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 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 +2.75%. This is because the Most Accurate estimate stands at $1.12, while the Zacks Consensus Estimate is pegged at $1.09.
Zacks Rank: Costco carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings estimates. Conversely, the Sell-rated stocks (Rank #4 and 5) should never be considered going into an earnings announcement.
Costco's Zacks Rank #3 and ESP of +2.75% make us reasonably confident of a positive earnings beat.
What's 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 rates 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:
FedEx Corp. ( FDX ) has an Earnings ESP of +4.13% and a Zacks Rank #2 (Buy).
Adobe Systems Inc. ( ADBE ) has an Earnings ESP of +5.88% and a Zacks Rank #3.
Red Hat, Inc. ( RHT ) has an Earnings ESP of +3.70% and a Zacks Rank #3.