Costco Will Be A "Share Gainer" With Solid Sales And High Membership Renewal Rates: Analyst Forecasts Upside

Telsey Advisory Group analyst Joseph Feldman reiterated an Outperform rating on Costco Wholesale Corporation COST, raising the price target to $625 from $600.

Costco reported a solid November headline comp of 3.5%, just shy of the analyst's view of 3.8%. 

Excluding the gas (-110 bps) and FX (+20 bps) net headwind of ~90 bps, the core merchandise comp came in at 4.4%, in line with the analyst's projection of 4.5%. 

In November, total traffic increased by +4.8% (U.S. +3.7%), while the average ticket decreased by 1.3%. 

The ticket decrease was related to below-average (but up) sales of discretionary products and lower fuel prices.

The November performance was solid and generally better than most retailers, especially the traffic growth, according to the analyst.

The company is to remain a share gainer, with its solid sales and high membership renewal rates (~128MM members). 

In FY24, Costco should continue to generate solid EPS growth, driven by a LSD-MSD comp, MSD-HSD membership fee income growth, customer data leverage, and effective merchandising and costs management, the analyst adds.

Feldman projects a December comp of 2.0% vs. 5.5% last year. The analyst estimates a gas and FX net headwind of ~30 bps, assuming the latest prices and rates, resulting in a core merchandise comp, ex gas, and FX, of 2.3% vs. 7.3% last year.

In December, the analyst expects traffic to remain solid—up 3.0%—as consumers search for value.

The analyst raised our 1Q24 EPS estimate to $3.36 from $3.32.

Price Action: COST shares are trading lower by 0.09% to $587.35 on the last check Thursday.

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