Costco and Darden: Breakouts!

05/23/2019 5:00 am EST


Leo Fasciocco

Investment Columnist and Publisher, Ticker Tape Digest

Leo Fasciocco is a technical expert that specializes in stocks that have broken out of recent trading ranges. Here, the editor of Ticker Tape Digest looks at two recent breakout buys — Darden Restaurants (DRI) and Costco Wholesale (COST).

Darden runs 1,536 restaurants in the U.S. and Canada — Olive Garden, LongHorn Steakhouse, and its fine dining division which includes The Capital Grille, Eddie V's Prime Seafood and Wildfish Seafood Grille. It also runs Yard House, Seasons 52 and Bahama Breeze.

Net for the fiscal fourth quarter ended in May is expected to jump 24% to $1.73 a share from the $1.39 the year before. For this fiscal year analysts expect a 20% increase in net to $5.78 a share from the $4.81 a year ago.

Meanwhile, net is expected to be reported in late June. Profits for the fiscal first quarter ending in August should rise a more modest 3% to $1.38 a share from  the $1.34 the year before. The highest estimate is at $1.42 a share.

We see chances for an upside earnings surprise. The company beat the consensus the past three out of four quarter and matched it once.  The stock sells with a price-earnings ratio of 21. We see that as a reasonable valuation.

Going out to the year ending in May 2020, the Street predicts an 11% rise in net to $6.43 a share from  the anticipated $5.78  this fiscal year. We are targeting the stock for a move to $140 a share.

Meanwhile, Costco operates membership warehouses in the U.S., Canada, U.K., Mexico, Japan, Australia, Spain, and via its subsidiaries in Taiwan and Korea.

The company operates 715 warehouses across the world. Its warehouses on average operate on a seven-day, 70-hour week.

Net for the fiscal third quarter ending in May analysts are forecasting a 7% increase in net to $1.82 a share from the $1.70 the year before. Net for the fiscal year ending in August is expected to rise 16% to $7.92 a share from the $6.83 the year before.

Looking out to fiscal 2020, analysts predict a more modest 6% increased in net to $8.40 a share from the anticipated $7.92 this fiscal year.

The company beat the Street estimate the past three out of four quarters. Based on the recent breakout, we are looking for a move to $285 within the next few months.

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