Analysts expect continued top-line acceleration for Costco
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Costco Wholesale Corporationâs (NASDAQ:COST) strong September sales figures reflect the value proposition that should promote further market share gains, according to analysts.
On Wednesday, the Washington-based retailer posted an 8.6% gain in comparable sales, exceeding expectations. Traffic to stores also showed a strong uptick, with analysts pointing to elevated gas prices as a key motivating factor adding to general bargain hunting among increasingly value-oriented consumers.
âBigger picture, COST's membership trends have never been stronger, and the company's entrenched value positioning and defensive/staples-heavy sales mix provide attractive P&L resiliency amid today's more difficult spending backdrop,â Baird analyst Peter Benedict commented. âWith a defensive/staples-heavy sales mix and loyal member base, we believe shares continue to hold fundamental appeal as a rare mega-cap âgrowth stapleâ.â
Truist Securities analyst Scot Ciccarelli homed in on the same trends, expecting market share gains to continue as persistent inflation highlights Costcoâs (COST) value proposition. Both analysts assigned an âOutperformâ rating to the stock.
To be sure, the companyâs reticence to raise prices to match its strong top-line growth was highlighted as a concern by more cautious analysts. Indeed, DA Davidson analyst Michael Baker expressed concerns on margins at the retailer as it refuses to raise, or cut, prices. Further, he expects traffic trends to pull back if gas prices retreat in coming quarters.
âWe believe rising gas prices helped COST take share at the pump and drove incremental traffic. Management noted that they have been able to compete with other discounters as prices have fallen on their earnings call two weeks ago,â Baker explained. âWe tend to worry about COSTâs margins, because the gas business has lower margins, and their ability to continue to drive traffic falls as gas prices fall.â
Both Baker and Guggenheimâs John Heinbockel assigned âNeutralâ ratings to the stock on the back of these concerns and an elevated valuation. Citi analyst Paul Lejuez added that competition adds to concerns, motivating his own âNeutralâ rating.
Still, catalysts available for the retailer in coming months mean bottom line concerns could be assuaged in the near future. Oppenheimer analyst Rupesh Parikh advised clients that volatility in shares should be seized upon.
âA membership fee increase and a special dividend could represent positive catalysts in coming quarters,â he wrote on Thursday. âCOST shares remain a top pick for us. We would take advantage of a likely continued volatile trade from here.â
Rounding out reactions, Jefferies also called the stock a âtop pickâ in the present market environment and assigned one of the Streetâs higher price targets at $610. 
Shares of Costco (COST) rose 0.45% on Thursday.
Dig into Wall Street ratings on Costco.