This is why Costco shares are down despite fourth-quarter beat

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Costco Wholesale Corp. reported fourth-quarter results that topped Wall Street’s estimates after market close Tuesday, although the company’s stock is down 1.7% in premarket trades Wednesday. 

Oppenheimer analyst Rupesh Parikh says that this is typical for the wholesale giant. “COST shares historically struggle on prints,” he wrote, in a note released Tuesday, adding that a lack of membership fee increase could weigh on shares Wednesday. “We would take advantage of any profit taking,” he added.

Nonetheless, Costco remains a top pick for Oppenheimer, according to Parikh. “We continue to play for a comp re-acceleration in coming quarters and believe a potential membership fee increase and a special dividend still represent potential positive catalysts down the road,” he wrote.  Oppenheimer maintained its outperform rating for Costco.

Related: Costco CFO says inventory ‘in good shape,’ thefts have not ‘dramatically’ increased as earnings top estimates

During Tuesday’s conference call to discuss the fourth-quarter results, Costco CFO Richard Galanti was asked if membership price increases are part of the company’s plan for the fiscal year.

“My pat answer, of course, is it’s a question of when, not if,” he said. “It’s a little longer this time around since June of 2017, so, we’re six years into it.” At that time, Costco raised its basic annual membership by $5 to $60. The wholesale giant also raised its executive memberships to $120 from $110.

This is a good time to own Costco, according to J.P. Morgan analyst Christopher Horvers in a note released Wednesday, citing defensiveness, a higher-income consumer base, ongoing share gains, ticket upside on general merchandise trends getting past pull-forward, and normalizing FX/gas headwinds. “On the stock, we believe COST is very well-positioned in the current market with high gas prices and increasing economic pressures causing consumers to seek out the company’s best-in-retail prices (gas and merchandise),” he wrote.

Related: Costco ‘on a roll’, boosted by back-to-school, according to foot traffic data

J.P. Morgan raised its Costco price target to $571 from $525 and reiterated its overweight rating.

Jefferies also reiterated its Costco buy rating in a note released Wednesday. “Costco is a defensive name by nature due to its membership model that generates predictable sales and profits, an attractive value-orientation, a higher-income customer, and a relatively significant penetration of consumables as a % of sales,” wrote Jefferies analyst Corey Tarlowe.

“Further, we believe Costco could raise its membership fee in the future, providing upside to estimates ahead,” he added. “Also, we believe Costco is well-positioned for further share gains ahead.” 

Related: Target to close 9 stores across 4 states, citing theft

Of 37 analysts surveyed by FactSet, 25 have an overweight or buy rating, 10 have a hold rating, and two have an underweight rating for Costco.

Wallace Witkowski contributed.

Source
Las Vegas News Magazine

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