Costco A Standout In Retail Sector For Analysts, But They Wonder Why No Membership Fee Hike

Retailer Costco Wholesale Corporation COST reported second-quarter financial results after market close Thursday.

Analysts are reacting to the results and what's next for the company. 

The Costco Analysts: Bank of America analyst Robert Ohmes had a Buy rating and a price target of $595.

BMO Capital Markets analyst Kelly Bania had an Outperform rating and a price target of $555.

Raymond James analyst Bobby Griffin had an Outperform rating and a price target of $570.

Oppenheimer analyst Rupesh Parikh had an Outperform rating and a price target of $550.

Telsey analyst Joseph Feldman had an Outperform rating and lowered the price target from $580 to $540.

Related Link: Trading Strategies For Costco Stock After Q2 Earnings 

The Costco Takeaways: Bank of America's Ohmes said Costco saw record membership support its strong same-store sales growth in the second quarter and into February.

“Comps should see support from consumables strength and improving membership trends,” Ohmes said.

The analyst added membership households (68.1 million) and renewal rates (92.6%) were both all-time highs for the U.S. and Canada regions. Ohmes said a membership fee increase is likely coming soon.

BMO Captial Market's Bania said there was no bad time to buy Costco stock, “only better times.”

“We continue to rate COST shares Outperform with a $555 target price and would use weakness in big-ticket/concerns over gas margins to build positions in shares,” Bania said.

The analyst said the big-ticket items and e-commerce were weak areas in the second quarter, but it should be taken with a grain of salt.

“Contrary to many parts of retail that are feeling the effects of unfavorable GM% mix-shift pressure, big ticket is slightly lower GGM% for Costco, muting the impact on profitability in our views.”

The analyst said Costco deserves a premium valuation, which is rare for the retail sector, thanks to its loyal membership base, strong execution, record renewal rates and the catalyst of membership fees going up.

Raymond James' Griffin said store traffic and membership growth and renewals were strong in the second quarter, offsetting any potential weakness.

“While the near-term could remain choppy, the long-term fundamentals of Costco’s business model that underpin our constructive rating remain well intact, in our view,” Griffin said.

For future growth, the analyst points to gaining market share in the U.S. and opening additional stores in the U.S. and international markets.

Oppenheimer's Parikh said shares of Costco could be trading lower after the company did not provide an update on a membership fee hike.

“We believe this is primarily due to the lack of a membership fee hike, which had been anticipated with this report,” Parikh said.

The analyst said it could be time to take advantage with shares trading down ahead of a pending membership fee hike and the potential for a special dividend.

“We still expect a membership fee hike and special dividend in coming quarters.”

Telsey's Feldman called the second quarter results strong, but noted the early February comps missed estimates due to weather.

“Costco generated a solid 2QF23 comp of 5.2%, benefiting from high member loyalty, value pricing, and stronger demand for food and consumables, partly offset by softness in select discretionary products,” Feldman said.

The analyst called Costco’s sales and margin trends “impressive” in the highly competitive retail environment.

“We believe Costco is executing well in this challenging operating environment. In our view, the company should remain a share gainer, with its solid sales and high membership renewal rates.

COST Price Action: Costco shares are down 3.4% to $469.16 on Friday versus a 52-week trading range of $406.51 to $612.27.

Read Next: Is Costco Raising The Price Of Its Famous Hot Dog Due To Inflation? 

Photo: dennizn via Shutterstock.