Value proposition

Costco’s value proposition is unmatched, stock remains the top choice

© Reuters. Costco’s (COST) Value Proposition Unmatched, Stocks Still Top Pick – Analysts Bullish on COST Despite PT Cuts

By Vlad Schepkov

Shares of Costco (NASDAQ:) are trading down more than 3% in pre-market early Friday, following the company’s latest earnings report, released late last night.

Fourth-quarter EPS from the world’s third-largest retailer of $4.20, narrowly beating analysts’ estimate of $4.15. Revenue for the quarter was $72.09 billion, also slightly above the consensus expectation of $71.64 billion.

Commenting on the stock’s weakness, an Oppenheimer analyst believes the company has been a victim of “high expectations” from investors, noting that “the bottom line delivery likely disappoints heightened investor expectations in our conversations following the strong Fuel hike at BJ and KR in their recent reports.”

The analyst lowers his price target to $550 from $600 to reflect falling valuations across the board, but maintains an ‘outperform’ rating and advises to ‘take advantage of any weakness tomorrow’. Oppenheimer sees a “potential dues increase and a special dividend” as major catalysts in the coming quarters.

A similar cautious but very positive tone is offered by an analyst at Truist Securities, as he cuts his price target to $559 from $571, but reiterates a “Buy” note, saying “Costco’s value proposition remains unmatched”.

The analyst also points out that the stock is a great buy during times of economic uncertainty, believing that “the more difficult the economic environment becomes, the more important Costco becomes for its members, which translates into even more traffic/sales and, ultimately, better purchasing power”. He concludes by citing the same “potential for future dues increases and the possibility of a 1x dividend” as key catalysts to look forward to.

Finally, a Jefferies analyst remained as optimistic as ever, noting that “COST remains a Top Pick.”

The analyst highlights further improvements in the business as “gross margin of 10.2% exceeded cons of 10.1%” and notes “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 reiterated a “Buy” recommendation with a price target of $610 on the stock.