Why Costco Is A Long-Term Hold, But Faces Tough Comparable Sales

Costco Wholesale Corporation COST could face tough comparable sales over the next few quarters from the COVID-19 pandemic peak of grocery and retail sales in 2020. An analyst remains bullish on Costco despite the potential risk. 

The Costco Analyst: Morgan Stanley analyst Simeon Gutman reiterates an Overweight rating and price target of $410.

The Costco Takeaways: Gutman called out the tough comparable sales Costco is now facing going against strong growth during the COVID-19 pandemic in 2020.

“We like COST as a longer-term holding — especially as the multiple has come in — but the stock may tread water until visibility on COVID laps improves,” Gutman said.

Costco reported net sales for the second quarter of $43.9 billion, up 14.7% year-over-year. Six-month sales of $86.2 billion reported by the company were up 15.8% year-over-year.

“In February 2021 COST delivered a 21.9% 2-year stack, maintaining momentum vs. the 22% stack in January. This suggests demand trends are still favorable.”

Stimulus and Covid-19 tailwinds could help with tough comparable sales, Gutman added. 

Costco also unexpectedly missed gross margin targets in the second quarter, Gutman said. He noted that Costco shares traded only slightly above where they were in January.

The price target from the analyst is based on a multiple of 30x 2022 estimated EPS of $11.30. The bullish case from Gutman takes the price target up to $520.

COST Price Action: Shares of Costco are down 3% to $311.41 on Friday.

Related Link: Here’s How Much Investing $1,000 In Costco Stock 5 Years ago Would Be Worth Today

(Photo: Nandaro via Wikimedia Commons)