Visa Co-Branded Card Off To A Good Start At Costco Wholesale

Contrary to investor fears, Visa Inc V's co-branded card is off to a strong start at Costco Wholesale Corporation COST, which reported fourth quarter EPS of $1.77, $0.03/$0.04 higher than the Barclays/Consensus estimates of $1.74/$1.73 due to a lower than expected tax rate.

On its quarterly print, Costco said about 85 percent of the 11.4 million Amex (American Express Company AXP) co-branded cards (7.5 million accounts) that transferred to Citi have been used in the prior 60 days. Since June 20, there have been 1.1 million applications for Visa and 730,000 new accounts.

Barclays said customer spending at Costco, which is transferring its Amex co-branded cardholders to Visa, will increase as it invests revenue and cost savings from Visa into the business. This in turn, should help offset lower fuel profitability and deflationary pressures.

Related Link: Here's How Costco Customers Can Still Use Their American Express Card

Analyst Karen Short noted that food deflation is expected to last about six months, while pointing out that "rising fuel prices benefit COST because in-store gross margins and gross profit dollars far exceed gas gallon profit dollars and margins."

Short, who has an Equal-Weight rating on the stock, maintains FY17 EPS estimate at $5.95.

Shares of Costco closed Thursday's trading at $147.49, while the analyst has a price target of $158.

At Time Of Writing ...

• American Express was up 0.78 percent at $63.87.
• Costco was up 3.65 percent at $152.85.
• Visa was down 0.16 percent at $81.81.

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