Earnings Previews: Costco, Paychex

No notable earnings reports have been released since last Wednesday, and only a handful are due this week. Among those are Accenture, Nike and Micron, all due later this week.

Here is a look at two companies set to release results late Tuesday or early Wednesday.

Costco

Shares of Costco Wholesale Corp. (NASDAQ: COST) have added more than 14% over the past 12 months, including a year-to-date increase of around 22.4%. Costco reports quarterly results after markets close Tuesday.

Virtually all of the company’s May quarter net income of $1.3 billion came from membership fees ($1.04 billion). Keeping prices low retains customers who are willing to pay for the privilege. And unlike other big box retailers, Costco’s shrinkage problem is minimal. The company has not raised its membership fees in six years, somewhat longer than its average of 5.5 years between increases. Is now the time?

Analysts are solidly bullish on the stock, with 26 of 37 having a Buy or Strong Buy rating. Another nine have rated the stock at Hold. At a share price of around $559.00, the upside based on a median price target of $587.00 is 3.2%. At the high price target of $651.00, the upside potential is 16.5%.

Revenue for the fourth quarter of fiscal 2023 is forecast at $77.96 billion, which would be up 45.3% sequentially and by 8.1% year-over-year. Adjusted EPS are forecast at $4.82, up 64.4% sequentially and 14.5% higher year over year. For the full fiscal year that ended in August, current estimates call for EPS of $14.57, up 9.8%, on sales of $241.17 billion, up 6.3%.

Costco stock trades at 38.3 times expected 2023 EPS, 35.7 times estimated 2024 earnings of $15.62 and 32.3 times estimated 2025 earnings of $17.27 per share. Its 52-week trading range is $447.90 to $571.16. The company pays an annual dividend of $4.08 (yield of 0.73%). Total shareholder return for the past year was 15.52%.

Paychex

Paychex Inc. (NASDAQ: PAYX) is the country’s second-largest integrated human resources outsourcer of staffing and employment services such as payroll and insurance. The stock has dropped about 4% from its share price over the past 12 months, including a decline of 5.4% in the past month. Paychex reports results first thing Wednesday morning.

Demand for the company’s services has been rising, partly due to regulatory requirements related to retirement plans and employee retention tax credits, and those tailwinds are expected to continue. A recovery in insurance services and still-high interest rates also bode well for revenue growth.

Of 19 analysts covering the stock, 12 have Hold ratings and three rate it at Buy or Strong Buy. At a share price of around $113.00, the upside potential based on a median price target of $121.00 is 7.1%. The high price target of $134.00 implies an upside of about 18.6% to the current price.

Analysts expect revenue for the company’s first quarter of fiscal 2024 to come in at $1.28 billion, up 3.9% sequentially and 5.8% higher year over year. Adjusted EPS are expected to come in at $1.12, up 15.5% sequentially, and by 8.7% year over year. For the full fiscal year that ends next May, analysts forecast EPS of $4.68, up 9.5%, and revenue of $5.33 billion, up 6.5%.

Paychex stock trades at 24.2 times expected 2024 EPS, 22.6 times estimated 2025 earnings of $5.00 and 20.9 times estimated 2026 earnings of $5.40 per share. The 52-week trading range is $104.09 to $129.70. Paychex pays an annual dividend of $3.36 (yield of 2.97%). Total shareholder return for the past 12 months was negative 1.12%.

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