Analyst firm Jefferies says that Costco Wholesale Corp. is in a good position to grow its shares in the future. The company reported its first-quarter results after the market closed on Thursday.
Jefferies analyst Corey Tarlowe said in a note released Thursday that “encouraging warehouse traffic and digital trends” are signs that the future will be good for Costco (COST +0.10%). He wrote, “Costco is a defensive name by nature because its membership model ensures steady sales and profits, it attracts customers who value things, it has a higher-income customer base, and a fairly large share of sales coming from consumables.” “The company also keeps opening new clubs in the U.S., has a good chance to keep growing internationally, especially in China, and just recently raised the prices of its memberships.”
He also said, “We think Costco is set up well for more share gains in the future.” Jefferies, which has a “buy” rating on Costco, kept its price goal of $1,145 for the membership warehouse store.
Costco’s Chief Financial Officer, Gary Millerchip, said on the conference call to talk about the findings that the company’s traffic, or the number of times people shopped there, rose 5.1% around the world and 4.9% in the U.S. In addition, Millerchip said that the company’s e-commerce traffic, conversion rates, and average order value were all higher than the same time last year. This helped boost growth in similar sales. Comparable sales on the Internet went up 13%.
Costco raised its membership fee earlier this year, the first time since 2017; it went from $60 a year to $65 a year. Starting on September 1, the fees went up.
Costco made $1.166 billion in membership fees in the first quarter, which is 7.8% more than the same time last year. “Remember that the recent increase in the membership fee doesn’t have much of an effect yet because of deferred accounting, and it was less than 1% of the fee growth in the quarter,” Millerchip said on the call.
After the first quarter, the company’s value is getting a lot of attention. At 9:37 a.m. Eastern time, Costco stock was worth $983.18. The stock is down 0.5%, while the S&P 500 index has gone up 0.3% (SPX -0.00%).
“Costco had a good quarter,” Truist Securities analyst Scot Ciccarelli wrote in a note released Friday. “Sales trends remain strong (stacked growth continues to be the strongest/most consistent in our coverage), and margins inched higher once again.” “The company continues to deliver strength across categories. Both fresh foods and non-foods were up [high single digits] in the quarter, showing that the products are appealing to customers who are becoming more selective about how much they spend.”
“However, even though the business is still doing well, we think that the valuation has become very high (about 55x EPS),” Ciccarelli said. Costco’s rating was kept at “Hold,” but the price goal was raised from $900 to $935.
The business had a profit margin of 11.28%, up from 11.04% in the same quarter last year.
“Customers are clearly liking what Costco is selling, but we are keeping our NEUTRAL rating even though the stock is trading at 54x consensus estimates for fiscal year 2025,” D.A. Davidson analyst Michael Baker wrote in a note that came out Friday. “Earnings before interest and taxes were higher than expected because gross margins were better than expected,” he wrote. This morning, D.A. Davidson raised its price goal for Costco from $880 to $900.
BMO Capital Markets also raised its price target for Costco in a note that came out on Friday. “We continue to see a long runway of both unit growth and same-store sales growth for Costco given its disciplined & differentiated approach to value & quality in retail,” BMO Capital Markets analyst Kelly Bania wrote. “We raise our target price to $1,175, and we change our valuation to our 60x upside scenario, which we still think is fair for [Costco].” BMO Capital Markets kept its “outperform” rating on Costco.
Comparable-sales growth at Costco was 5.2%, up from 3.8% during the same time last year.
Of 40 analysts surveyed by FactSet, 21 have an overweight or buy rating, 18 have a hold rating and one has a sell rating for Costco.
Costco shares are up 48.5% in 2024, outpacing the S&P 500 index’s gain of 27.3%.
