Costco Stock Rallies After Q1 Earnings: 5 Analysts React To Stock At All-Time High

Costco Wholesale Corporation COST shares have gotten a nice bump since the company reported fiscal first-quarter earnings late last week, but several Wall Street analysts say there may be more upside ahead for the warehouse retailer.

On Thursday, Costco reported a first-quarter adjusted EPS of $2.98 on revenue of $50.4 billion. Both numbers topped consensus analyst estimates of $2.60 and $49.2 billion, respectively. Revenue was up 16.6% from a year ago.

Costco also reported first-quarter same-store sales growth of 15%, beating analyst estimates of 12%. Online sales were up 14.3%.

U.S. same-store sales were up 14.9%, while Canadian sales were up 17.2% and same-store sales in other international markets were up just 13.4%.

Costco reported $946 million in membership fees in the quarter, up from $861 million a year ago. Merchandise costs also increased 17.3% to $43.9 billion.

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Strong Margins: Raymond James analyst Bobby Griffin said first-quarter numbers reinforce the company’s bullish outlook.

“Costco's product mix (food/consumables and discretionary goods), clean balance sheet and sticky customer base (~91% U.S. renewal rate, new all-time high; millennial growth) position it well to continue to benefit and gain share,” Griffin wrote.

Wells Fargo analyst Edward Kelly said Costco’s margins once again surprised to the upside.

“In addition, management sounded optimistic on share retention as we exit the pandemic and the ability to grow off of this higher base,” Kelly wrote.

Bank of America analyst Robert Ohmes said Costco has consistently reported positive sales momentum and membership renewal trends.

“We also expect sales to benefit from new club growth (COST plans to open ~27 net new warehouses in F22, including 8 in F1Q), the continued recovery of higher margin Ancillary, the integration of Costco Logistics (which currently represents ~70% of COST’s US e-commerce big & bulky shipments), and other e-commerce/digital enhancements (including Costco Next, e-commerce kiosks, etc.),” Ohmes wrote.

Valuation Upside: Morgan Stanley analyst Simeon Gutman says he’s bullish on Costco stock, even with shares trading near all-time highs.

“We sensed an unexpectedly bullish tone from CFO Richard Galanti regarding a potentially higher structural margin profile,” Gutman wrote.

Oppenheimer analyst Rupesh Parikh said Costco remains a top pick, but near-term upside may be limited.

“We believe there could be more of a sideways trade N-T before the next significant move higher as investors look toward a potential membership fee hike later in 2022 and prospects for another special dividend,” Parikh wrote.

Costco shares have ranged from a low of $307 to a high of $561.27 over a 52-week period.

Ratings And Price Targets:

• Morgan Stanley has an Overweight rating and a $560 target.
• Raymond James has an Outperform rating and a $565 target.
• Wells Fargo has an Overweight rating and a $600 target.
• Oppenheimer has an Outperform rating and a $580 target.
• Bank of America has a Buy rating and a $595 target.

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