Costco Executes Well Despite Uncertainty, Analyst Says: 'Stock Isn't Cheap, But Its Strategic Position Is Extremely Rare'

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

Analysts size up the results and what's next for Costco stock, which trades near all-time highs.

• Truist analyst Scot Ciccarelli has a Buy rating and raises the price target from $741 to $815.
• Stifel analyst Mark Astrachan has a Buy rating and raises the price target from $735 to $800.
• Telsey analyst Joseph Feldman has an Outperform rating and raises the price targe from $750 to $800.
• Oppenheimer analyst Rupesh Parikh has an Outperform rating and a price target of $805.
• Goldman Sachs analyst Kate McShane has a Buy rating and raises the price target from $749 to $830.
• DA Davidson analyst Michael Baker has a Neutral rating and raises the price target from $600 to $680.

Related Link: Costco Membership Fee Increase Could Be Coming, Hot Dog & Soda Combo To Stay The Same

Truist: Improving discretionary sales and Costco's position could benefit the company going forward, Ciccarelli said.

"Costco continues to generate the best/steadiest traffic growth in big cap retail. Further, sales in many discretionary categories are starting to accelerate, suggesting that consumers are starting to feel more financially secure," Ciccarelli said.

Costco continues to outperform retailers across several sectors. Appliances are up 20% year-over-year for the retailer versus the industry being flat.

"The stock isn't cheap, but its strategic positioning/performance is extremely rare," the analyst added.

Stifel: Costco’s strong second-quarter results were in-line with estimates, Astrachan said.

The analyst said an upcoming catalyst continues to be a membership increase from the company.

"On a potential membership fee increase, the company reiterated its expectation for when not if, though inaction thus far suggests it has visibility on enough levers to drive the business," Astrachan said.

The analyst said Costco's commentary pointed to inflation being lower, leading to price reductions in several areas.

Telsey: Positive trands for Costco in consumables and non-consumables were highlighted by Feldman in an investor note.

The analyst was encouraged by increased traffic, higher renewal rates, management of inflation and strong e-commerce growth.

"We believe Costco continued to execute well in this uncertain operating environment. We expect the company to remain a share gainer, with its solid sales and high membership renewal rates," Feldman said.

Oppenheimer: Costco shares pulled back on Friday after hitting 52-week highs.

"High expectations and a lack of a membership fee hike could be contributing to profit taking after hours. For longer-term players, we would take advantage of the pullback," Parikh said.

Goldman Sachs: Solid top line trends and increased traffic were highlights from Costco's earnings report for McShane.

"The company highlighted good seasonal sell-through during the quarter with inventory well positioned across channels," McShane said.

The analyst said membership strength was also recognized in the second quarter, which could delay a membership fee increase.

"Membership strength continued, with management still not committing to timing for a fee increase."

DA Davidson: A high bar of expectations likely led to a pullback in after-hours Thursday, Baker told investors.

"The stock typically moves on the quarterly results based on gross margin trends and the size of the EPS beat," Baker said.

No mention of a membership fee increase could also be an item leading to the stock dropping, or seen as a "catalyst lost," the analyst said.

"We doubt holders will panic, so we don't anticipate a sharp decline, but perhaps a pause that refreshes."

The company also highlighted its strong sales of gold online and adding silver into the mix. It also opened a sushi offering in one location and has more offerings planned.

COST Price Action: Costco shares are down 7% to $727.79 on Friday versus a 52-week trading range of $456.42 to $787.08.

Read Next: Costco’s Technical Momentum Builds Ahead Of Q2 Earnings

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