Costco’s value proposition unmatched, stock still top – analysts bullish despite PT cuts

Costco’s value proposition unmatched, stock still top – analysts bullish despite PT cuts

Written by Vlad Shepkov

Costco (NASDAQ:) shares are trading down more than 3% early Friday, following the company’s latest earnings report, which was published late last night.

The world’s third-largest retailer Q4 EPS at $4.20, narrowly beating analyst estimates of $4.15. Revenue for the quarter came in at $72.09 billion, slightly exceeding the consensus forecast of $71.64 billion.

Commenting on the stock’s weakness, an Oppenheimer analyst believes the company has fallen victim to investors’ “high expectations,” noting that “delivering the bottom line is likely to disappoint investors’ growing hopes in our conversations after the strong fuel rally in BJ and KR in their recent reports.”

The analyst is lowering the target price to $550 from $600 to reflect shrinking valuations across the board, but maintains a “outstanding” rating and advises “to capitalize on any weakness tomorrow.” Oppenheimer sees potential “increased membership fees and special dividends” as major catalysts in the coming quarters.

A cautious but very positive tone is being given by a Trustee Securities analyst, who cut his price target to $559 from $571, but reiterated the “buy” rating, claiming that “Costco’s value proposition remains unmatched.”

The analyst also highlights the stock as a great buy in times of economic uncertainty, believing that “as the economic environment becomes more challenging, Costco becomes more important to its members, which leads to increased traffic/sales and thus improved purchasing power.” He concludes by citing “the potential for future membership fee increases and the potential for a multiple return” as key motivators to look forward to.

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Finally, the Jefferies analyst remains bullish as ever, noting that “cost remains the best option.”

The analyst highlights further improvements in the business, where “10.2% gross margin came in ahead of flaws. 10.1%” and notes that “the membership model drives predictable sales and profitability in an increasingly uncertain environment.”

On the question of what not to like about the quarterly report, the analyst was blunt – “nothing.”

Jefferies repeated a “buy” recommendation with a $610 price target on the stock.

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