Barclays Names Costco Catalysts

Costco Wholesale Corporation COST “is one of the few stocks in retail that has been able to decouple from macro fears,” with the stock rallying year to date, gaining 10.9 percent, as compared to the 5.7 percent rise in the S&P 500.

Barclays’ Karen Short maintains an Equal-Weight rating on the company, with a price target of $158.

Q2 Expectations

Costco Wholesale is scheduled to report its second-quarter 2017 results after the close on March 2.

“The benefit to profits from the new Visa card V) appear to be reflected in estimates, but there may still be upside to comps in FY 2017 given the cycling of tobacco as well as lessening headwinds from deflation,” the analyst mentioned.

Related Link: Costco's Colossal January Comps Keep It A Top Pick For 2017

Short also noted that there was a widespread expectation that MFI (membership fee income) is only likely next year, although this is not reflected in the forecasts as yet.

As a result, the analyst believes that the stock is fairly valued at present, explaining that “COST does not appear to have a clear valuation ceiling given its scarcity value among retail stocks.”

For Q2, Short expects investors to focus on the timing of the potential MFI, the new Vida co-branded card sign-ups, reinvestment or flow-through of the Visa benefit and deflation commentary from management.

Catalysts

Among the catalysts for Costco Wholesale, the analyst noted that traffic had accelerated in recent months in the United States.

In addition, the new Visa credit card might drive an overall increase in card use, while the new arrangement with Visa is already benefiting Costco Wholesale’s margins.

MFI is expected for the Asian markets, the U.K. and Mexico in September, while fresh food comps have been positive, despite deflation across multiple categories.

Short also pointed out that FX has been less of a headwind, while noting that FY 2017 would be a 53-week year.