4 Costco Analysts Praise Q2 Earnings Beat Even As Growth Slows

Costco Wholesale Corporation COST shares rebounded by 1% on Monday after the company reported a fiscal second-quarter earnings beat late last week.

Costco reported second-quarter adjusted EPS of $2.92 on revenue of $51.9 billion. Both numbers topped consensus analyst estimates of $2.76 and $51.5 billion. Revenue was up 15.9% from a year ago.

Same-store sales (excluding gasoline) were up 11.1% from a year ago. February same-store sales were up just 10.6%, a slight slowdown from January and February levels.

Online sales growth also continued to moderate, dropping to just 12.6% in the quarter compared to nearly 75% a year ago. Membership fee revenue was up 9.7% from a year ago.

Related Link: 'Near-Term Pain For Long-Term Gain': 4 Snowflake Analysts React To Mixed Earnings Report

Bullish Membership Trends: Bank of America analyst Robert Ohmes says Costco's membership trends continue to improve.

"Membership households reached 63.4mn in F2Q (vs. 62.5mn in F1Q & 59.7mn LY) while renewal rates increased to 89.6% worldwide and 92% in the US (vs. 88.5% & 91% LY, respectively), supported by increasing auto-renewals, higher penetration of executive members, and higher first-year renewal rates," Ohmes wrote.

Jeffries analyst Stephanie Wissink said Costco's value advantage over competitors increases during inflationary periods.

"Results continue to confirm COST's ability to manage inflationary and supply chain headwinds, as well as sustained membership advancement," Wissink wrote.

Fee Hike Ahead: Stifel analyst Mark Astrachan said he expects Costco to raise its membership fees and announce a special dividend sometime in the next nine months.

"Overall strong comp growth remains most notable and we think share gains should result in continued leverage, especially of SG&A expenses, and which should drive operating margin expansion from current levels," Astrachan wrote.

Telsey Advisory Group analyst Joseph Feldman said Costco continues to gain market share, grow sales and generate strong membership renewal rates.

"In calendar 2022, Costco should continue to generate strong EPS growth, driven by a HSD comp, HSD membership fee income growth, healthy digital growth, and lapping COVID-19 related costs," Feldman wrote.

Ratings And Price Targets:

• Bank of America has a Buy rating and a $595 target.
• Jefferies has a Buy rating and a $650 target.
• Stifel has a Buy rating and a $555 target.
• Telsey Advisory Group has an Outperform rating and a $615 target.