Costco's 'core' price target despite rising membership fees

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Costco's 'core' price target despite rising membership fees

Costco COST customers seem to be swallowing the cost of membership fees to get access to the wholesale retailer.

In the company's fourth quarter earnings report, the company beat the top and bottom lines with revenue of $72.09 billion dollars, slightly higher than Bloomberg estimates of $71.89 billion, and adjusted earnings per share of $4.20, higher than estimates of $4.14.

Wall Street analysts are confident that Costco will keep the momentum going despite shares dropping 2 percent in after-market trading Thursday.

Goldman Sachs reiterated its Buy rating with an updated 12 month price target of $548 in a note to investors, citing that top-line trends are healthy, supported by membership gains.

The note said that the company s scale and limited SKU model allow it to manage current inflation cost pressures and that the company continues to have confidence in COST's value proposition resonating with consumers.

JPMorgan currently holds an overweight rating on the company with a $550.00 price target. JPMorgan retail analyst Christopher Horvers calls the company a core holding.

Horvers said that COST continues to be a core holding given its unrivaled value proposition 11% gross margins, its fiercely loyal customer base 90% renewal rate and global growth opportunity 2 3% annually and likely double the current store base from here are a rare combination in retail and consumer staples. Aftermarket close Friday, shares of the company fell to $466.40 per share, down 4.26%.

In the same quarter, Costco had 65.8 M paid household members and 118.9 M cardholders, both of which were up 6.5% compared to a year ago.

CFO and Executive VP Richard Galanti said that a fee hike could come in the future, but not right now, with customers willing to pay up and inflation taking a toll on skyrocketing grocery prices.

There is no plan for a fee increase at this time. We are pleased with our growth in both top-line sales and membership households over the last several quarters, and member loyalty is reflected in increased member renewal rates. He said on a call with investors that we will let you know when something is about to happen.

The next potential hike is in January of 2023, and Costco usually hikes its membership every 5 years and seven months. Galanti said he was not suggesting it would happen, but the team is confident in its ability to do so.

We are confident in our ability to do so and at some point we will. Costco's annual fees are more expensive than one of its closest competitors, Sam s Club owned by Walmart WMT, which recently raised prices for the first time since 1999. On October 17th, the annual membership fees for Club members will be changed to $50 from $45 and $110 from $100 for Plus members.

Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at BrookeDiPalma or email her at bdipalma yahoofinance.com.