Costco is defended by bulls despite staying quiet on membership fee increase
Eric Thayer
Costco Wholesale Corporation (NASDAQ:COST) fell slightly in early trading on Wednesday after topping estimates with its FQ4 earnings report. The Issaquah, Washington-based company did not outline the timing of a membership fee income, but put up strong enough numbers to keep analysts positive.
Bank of America analyst Robert Ohmes and team expect Costco (COST) to invest in price early as costs come down, which is seen to support its value proposition and traffic. BofA also expects profitability to see support from easier LIFO comparisons and a potential membership fee increase. The firm reiterate its Buy rating and views Costco (COST) as well-positioned given expected warehouse club share gains as consumers continue to adjust to higher grocery prices, the retail chain's private label leadership, more digital opportunities, and the competitive advantages afforded by COSTâs global sourcing model. Costco's (COST) long history of stable-to-slightly-rising EBITDA margins over time and industry leading net cash position were also called out. BofA boosted its price objective on COST to $610 from $575.
Jefferies reiterated a Buy rating on Costco (COST) and price target of $640. "Looking ahead, COST's strong value offering, high renewal rates, and club expansion plans make COST well-positioned, in our view," updated analyst Corey Tarlowe.
JPMorgan also stayed bullish on Costco (COST), saying it is a good time to own the stock given defensiveness, higher-income consumer base, ongoing share gains, ticket upside on general merchandise trends getting past pull-forward, and normalizing FX/gas headwinds. The firm kept an Overweight rating and price target of $571.
Morgan Stanley said the risk/reward profile on Overweight-rated Costco (COST) looks relatively balanced near-term following the stock's intra-quarter outperformance reflecting both higher gas prices and speculation over a membership fee increase. Analyst Simeon Gutman noted valuation is a bit elevated at ~36X near-term P/E, the stock's highest multiple in about a year. "Thus while we're not aggressive buyers of the stock here, we would look to take advantage of any pullbacks," he advised.
During Costco's (COST) earnings call (transcript), management noted that inflation is trending down in the current quarter.
Shares of Costco (COST) fell 1.97% in premarket action to $542.05.

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