Costco Earnings Preview: Can COST stock stop the drop?

Costco (COST) reports earnings after the close on Thursday, and getting a handle on how it will look is difficult. The stock has outperformed the main indices this year. COST is down 13% so far in 2022, while the indices are down at least 20%.

COST stock news

Analysts have recently been upgrading estimates for current earnings. Yes, upgrading is a relatively unusual move given the recent turmoil in the retail sector. With consumers opting through for lower-cost alternatives, Costco could benefit from low-cost switching. This does set up the possibility of COST being more likely to surprise to the downside than upside. Analysts are naturally bullish, but this looks a step too far with not one Sell rating from Wall Street. Since last quarter upgrades have outpaced downgrades by a 3-to-1 ratio. This is despite last quarter's earnings merely being in line.

For this quarter the bar is now set at $4.17 for EPS and $72 billion for revenue, so I expect a miss. How will the stock react? What is priced in? Here is where it gets difficult. COST is off 13% in the past month as retailers feel the brunt of anticipated demand shortfalls and consumer pullbacks. This makes it difficult to see much risk reward here. In fact with the stock off 13% in a month, any beat is likely to see a more extreme reaction. This is the risk-reward even though I deem it unlikely. 

COST stock forecast

Again trading to the bottom of recent ranges. The overall picture is bearish, but the potential for a sharp spike in good news is probably higher than an earnings miss and resultant sell-off. $507 is the short-term pivot.

COST hourly chart

$490 to $482 is the support zone. Breaking here will likely lead to a test of lows at $406.51 from June. So far this recent decline has not seen a corresponding fall in the Dccumulation/Distribution line, which is a bullish divergence indicator but a weak one.

COST daily chart