Costco stock forms a bullish pattern as traders bet on a split, special dividend

Costco stock price has come under pressure in the past few months, moving from a high of $1,073 in February to the current $887, a 17% drop. 

It has dropped by 10.1% in the last 12months, underperforming the SPDR S&P Retail ETF (XRT), which has risen by 4%. Walmart stock has jumped by almost 24% this year. So, will the Costco share price rebound after earnings this week?

Costco’s business is doing well 

The main catalyst for the Costco stock price will be its earnings, which will come out on Thursday this week.

These results are expected to show the company continues to do well as consumers used its stores to find bargains amid the government shutdown and high inflation environment.

The most recent results revealed the Costco’s net sales rose to $86.15 billion in the fourth quarter, up sharply from the $79.9 billion it made in the same period last year.

The company’s annual revenue rose to $275 billion from $254 billion, making it one of the biggest retail companies in the world.

Additionally, the company continued to add more members to its stores, with the membership fees rising to $1.72 billion, up sharply from $1.512 billion in the same period last year.

Most importantly, Costco’s profits continued growing even as Donald Trump’s tariffs affected its operations. The net income rose to $2.6 billion from $2.34 billion, with the annual figure hitting $8 billion for the first time ever. 

READ MORE: 2 reasons why the Costco stock price has collapsed this year

Costco earnings are coming 

Recent releases shows that Costco’s business continued doing well. For example, a monthly report released last week showed that its total comparable sales rose by 6.9% in November, with most of this growth coming from its international business. Its digitally enabled comparable store sales rose by 16.6%.

Wall Street analysts expect that the company’s results will show that its revenue rose by 8% in the first fiscal quarter to $67.1] billion, while its guidance for the next quarter will be $68.96 billion, up by 8.22% from the same period last year.

The company’s profitability is expected to accelerate, moving to $4.28 from the $4.04 it experienced in the same period last year.

According to Yahoo Finance, the annual revenue is expected to come in at $297 billion, up by 7.92% from the last financial year.

Most importantly, Evercore analysts believe that the management will do some more measures to boost the stock. Precisely, they expect that the company will pay a special dividend and even announce a stock split. If this happens, it will be the fourth split after the ones in 1991, 1993, and 2000. Historically, stock prices normally rise after these measures are announced.

The main concern about Costco is that its stock has been highly overvalued, with its forward price-to-earnings ratio of 44.57 being higher than the sector median of 15. It is also higher than the five-year average of 42.

Costco stock price technical analysis 

The three-day timeframe chart shows that the Costco stock price has been in a strong downward trend in the past few months. This crash happened after the stock formed a double-top pattern at $1,065 and a neckline at $870. A double-top is one of the most common bearish reversal signs in technical analysis.

On the positive side, the stock has now formed a falling wedge pattern, which is made up of two descending and converging trendlines. In most cases, this pattern often leads to a strong bullish breakout, when the two lines are about to converge.

Therefore, the most likely scenario is where the stock rebounds and possibly hits the important resistance level at $1,000, which is about 12% above the current level. 

This rebound will likely happen if the company publishes strong financial results, boosts its guidance, announces a special dividend, and a stock split.

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