Costco bulls pound the table on long-term upside
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Costco Wholesale Corporation (NASDAQ:COST) is being defended vigorously by Wall Street bulls after delivering a double beat with its FQ3 earnings report.
Oppenheimer noted better than expected expense controls helped to offset weaker gross margins during the quarter.
The firm sees some headwinds to the COST bull case in the near term on the margin front, but advises investors to take advantage of any dips with the retail stock that it has slotted as one of its top picks.
Morgan Stanley noted that Costco (COST) acknowledged the same cost pressures as other retailers are seeing, but given the level of inflationary pressure on consumers, believes COST may opt to lean in.
"Though the company didnât discuss using price as a lever, renewal rates hit an all time high in FâQ3, indicating COSTâs value proposition is resonating especially well in this macro environment."
Morgan Stanley is confident a membership fee increase will happen even if it does get pushed out by several quarters,
During the earnings call, Costco (COST) said historically it has raised fees every five to six years with the last three increases coming on average at about the 5.5-year time frame. The last increase was in June of 2017. "As we approach this 5.5-year mark, there will be more discussions," updated Costco (COST) management.
Wells Fargo's take on the Costco (COST) quarter was that there were many positives that probably won't get enough attention.
"COST is taking share, as evidenced by its sales trends and 20% fuel gallon growth (correlated with inside traffic). Membership trends have been excellent, with the best first year and overall renewal rates in history. Its customer is holding up very well. The company's inventory position seems relatively good and management expressed confidence in its ability to navigate the inflationary backdrop."
The firm called COST a high quality name trading at a large discount to how the market valued it just one month ago.
Read the full Costco (COST) earnings call transcript.