Costco Wholesale Corporation's earnings report was upbeat on Tuesday as investors viewed the company's strong performance in the FQ4 earnings report. The Issaquah-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 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 reiterates its Buy rating and views Costco 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 COST's global sourcing model. Costco's long history of steady-to-slightly-rising EBITDA margins and industry leading net cash position were also called out. BofA boosted its price objective on COST to $610, from $575.
Jefferies said he expects to see a $$640 price tag on costco next month. COST's strong value offering, high renewal rates, and club expansion plans make it well-positioned, said analyst Corey Tarlowe.
JPMorgan also stayed bullish on Costco, saying it is a good time to own the stock given its defensiveness, higher-income consumer base, ongoing share gains, ticket upside on general merchandie trends getting past pull-forward and normalizing FX/gas headwinds. The firm kept an Overweight earing and price target of $571.
Morgan Stanley said the risk/reward profile of Overweight-rated Costco looks relatively balanced near-term after the stock's intra-quarter outperformance reflecting both higher gas prices and speculation over a membership fee increase. Simeon Gutman, an analyst, said valuation is a bit elevated at 36X near-term P/E, the stock's highest multiple in about a year. We would look to take advantage of any pullbacks, he said, re not aggressive buyers of the stock here.
In the earnings call of Costco, management reported that inflation is trending down in the current quarter.
Costco shares fell 1.97% in premarket action to $542.05.