Costco 'Firing On All Cylinders': 6 Analysts Size Up Q3, Catalysts Of 'Membership Fee Hike And Stock Split'

Retailer Costco Wholesale Corporation COST reported third-quarter revenue and earnings per share that beat estimates from analysts.

Analysts are weighing in with their reactions to the earnings report and what's next for the retailer.

The Costco Analysts:

• BMO analyst Kelly Bania has an Outperform rating and raises the price target from $800 to $875.
• Truist analyst Scot Ciccarelli has a Buy rating and raises the price target from $815 to $873.
• Stifel analyst Mark Astrachan has a Buy rating and raises the price target from $800 to $850.
• Oppenheimer analyst Rupesh Parikh has an Outperform rating and raises the price target from $805 to $850.
• Roth MKM analyst Bill Kirk has a Neutral rating and raises the price target from $650 to $676.
• Telsey analyst Joseph Feldman has an Outperform rating and raises the price target from $800 to $850.

Related Link: Costco Q3 Earnings Preview: Analyst Estimates, Foot Traffic Data, Membership Fee Increase Eyed By Investors

BMO: The retailer reported strength in comparable sales in all regions, with discretionary sales strong, Bania said in a new investor note.

"Key metrics including traffic (+6.1%) and renewal rates remained robust, which along with Costco's strong merchant organization, and future opportunities on digital, retail media, and personalization leave us as bullish as ever on COST shares," Bania said.

Truist: The retailer could stand out in the sector with discretionary sales growing, Ciccarelli said.

"While many retailers continue to note discretionary goods, Costco has grown their appliance for several quarters now and discretionary products actually posted the strongest growth in the company this quarter," Ciccarelli said.

The analyst highlighted the consistency of the retailer as a reason to justify a premium multiple for the stock.

"Costco delivered a strong quarter and its consistency remains virtually unmatched in retail."

Ciccarelli said there is still a wait for the membership fee increase, which now stands at seven years since the last raise versus a historical range of five to six years.

The analyst also sees an opportunity for more Costco stores in the U.S. an internationally.

"We believe Costco's unit growth potential remains highly underappreciated, is greater than what most investors think."

Stifel: The third-quarter results demonstrate Costco's business model strength, Astrachan said.

"We think strong comp growth, membership growth, and member retention rates indicate the company's value proposition continues to appeal and contribute to share gains across most of the company's businesses," Astrachan said.

The fact that a membership fee increase is coming but hasn't been announced could show the company's confidence in its current profit growth, he added.

Oppenheimer: Strong third-quarter results likely won't see Costco shares react significantly, Parikh said.

"Catalysts from here, in our view, include a potential membership fee hike and/or stock split," Parikh said.

The analyst said the price target and price-to-earnings multiple premium are based on the company's "superior operating ability" and "growth prospects."

Roth MKM: The retailer is gaining market share in areas where competitors are "in contraction," Kirk writes.

The analyst highlights Costco's profitability and high return on invested capital opportunities. The analyst also said the unit expansion opportunity for Costco might be "more robust" than considered.

Costco “is confident its value offering remains compelling, in the face of other retailers signaling price investment," Kirk said.

The analyst said Costco is the "best-in-class operator," but shares are fairly valued at current levels.

Telsey: The retailer is "firing on all cylinders" in the third quarter and future, Feldman said.

"Costco continues 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," Feldman said.

The analyst sees strong earnings per share growth ahead. E-commerce growth was another area highlighted by the analyst that could outperform for the company going forward.

"Costco continues to focus on providing great value on quality merchandise as well as expanding its digital and retail media businesses."

COST Price Action: Costco shares are down 2% to $796.55 on Friday versus a 52-week trading range of $498.07 to $819.50.

Now Read: Costco Hires New CFO, But Don't Expect $1.50 Hot Dog Combo Price To Change

Image: Shutterstock