Costco reported fiscal first-quarter results after market close Thursday.Photo: Getty Images
Costco Wholesale Corp., which reported first-quarter results after market close Thursday, is well placed for future share gains, according to analyst firm Jefferies.
In a note released Thursday, Jefferies analyst Corey Tarlowe pointed to “encouraging warehouse traffic and digital trends,” which bode well for Costco’s
COST
future. “Costco is a defensive name by nature due to its membership model that generates predictable sales and profits, an attractive value orientation, a higher-income customer, and a relatively significant penetration of consumables as a [percentage] of sales,” he wrote. “Additionally, the company continues to open new clubs in the U.S., has a meaningful runway for ongoing international expansion, notably China, and recently raised its membership prices.”
Tarlowe added: “We believe Costco is well-positioned for further share gains ahead.” Jefferies, which has a buy rating for Costco, reiterated its $1,145 price target for the membership warehouse retailer.
Speaking during the conference call to discuss the results, Costco Chief Financial Officer Gary Millerchip said that the company’s traffic, or shopping frequency, increased 5.1% worldwide and 4.9% in the U.S. Millerchip also said that the company’s e-commerce traffic, conversion rates and average order value were all up year over year, helping drive comparable-sales growth. E-commerce comparable sales were up 13%.
Earlier this year Costco raised its membership fee for the first time since 2017, increasing the annual fee to $65 from $60. The fee increase went into effect on Sept. 1
Costco’s membership-fee income was $1.166 billion during the first quarter, a 7.8% year-over-year increase. “Remember that the recent membership-fee increase doesn’t have much impact yet due to the effects of deferred accounting, and [it] represented less than 1% of the fee growth in the quarter,” Millerchip said during the conference call.
Related: Costco’s November online sales hit by timing of holiday deals
The company’s valuation is in the spotlight following its first-quarter results. Costco shares were trading at $983.18 at 9:37 a.m. Eastern time. The stock is down 0.5%, compared with the S&P 500 index’s
SPX
gain of 0.3%.
“Costco delivered a solid quarter, as sales trends remain strong (stacked growth continues to be the strongest/most consistent in our coverage) and margins inched higher once again,” Truist Securities analyst Scot Ciccarelli wrote in a note released Friday. “The company continues to deliver strength across categories, with fresh foods and non-foods up [high single digits] in the quarter as the offerings are resonating across the board with consumers who have becomes increasingly selective in their spending.”
“That said, while the business remains strong, we believe that (even for Costco), the valuation has become extremely stretched (~55x EPS),” Ciccarelli added. Truist maintained its hold rating for Costco but raised its price target to $935 from $909.
Related: Costco reveals sales jump in first month after raising fees, boosted by one crucial week
The company’s gross margin was 11.28%, up from 11.04% in the prior year’s quarter.
“[Costco’s] offering is clearly resonating with consumers, but we maintain our NEUTRAL rating with the stock trading at 54x consensus estimates for [fiscal year] 2025,” D.A. Davidson analyst Michael Baker wrote in a note released Friday. “Gross margins were better than expected, driving [earnings before interest and taxes] ahead of estimates,” he wrote. D.A. Davidson raised its Costco price target to $900 from $880.
BMO Capital Markets also raised its Costco price target in a note released Friday. “We continue to see a long runway of both unit growth and same-store sales growth for Costco given its disciplined & differentiated approach to value & quality in retail,” BMO Capital Markets analyst Kelly Bania wrote. “We raise our target price to $1,175, as we shift our valuation to our upside scenario of 60x, which we believe remains reasonable for [Costco].” BMO Capital Markets maintained its outperform rating for Costco.
Costco’s comparable-sales growth was 5.2%, up from 3.8% in the same period last year.
Of 40 analysts surveyed by FactSet, 21 have an overweight or buy rating, 18 have a hold rating and one has a sell rating for Costco.
Costco shares are up 48.5% in 2024, outpacing the S&P 500 index’s gain of 27.3%.
