Oppenheimer Upgrades Costco, Highlights 'Attractive Entry Point'

Shares of Costco Wholesale Corporation COST have lost 3% since August and Oppenheimer says now is a good time to be buyers of the stock.

The Analyst

Rupesh Parikh upgraded Costco from Perform to Outperform with a price target lifted from $300 to $335.

The Thesis

Costco's stock gained 44% in 2019 while the S&P 500 gained 29%, but the 17 percentage point underperformance since August creates an "attractive entry point," Parikh wrote in the note. The stock's relative P/E now stands at 1.8 times versus 2.07 times back in August, which creates a "more attractive" valuation on a relative basis.

Looking forward to the second quarter, Parikh said investors are "well aware" the company will be up against a difficult comparison as Costco showed a 41.5% earnings per share growth last year. Although Street estimates look a little bit aggressive for the second quarter, any shortfall would "likely be bought" by investors in the current risk-on environment.

The analyst said other bullish factors include Costco's international growth prospects which remains one of the best among retailers and discounters, the analyst wrote. In addition, a special dividend of around $10 per share could be declared in the coming quarter. The dividend estimate is based on the company having around $22 per share in cash after paying down $1.7 billion in debt this year.

Price Action

Shares of Costco were trading higher by 1% at around $308.

Related Links:

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Photo credit: Mike Mozart, Flickr