Costco Wholesale Sales Growth Stands Solid; Target Price $445 in Best Case

Costco Wholesale Corporation, which operates a chain of membership-only big-box retail stores, reported a high-than-expected profit in the fiscal third quarter, prompting several analysts to raise their one-year price targets.

The leading warehouse club said its net sales for the quarter jumped 21.7% to $44.38 billion, from $36.45 billion last year. Net sales for the first 36 weeks increased 17.7% to $130.61 billion, from $110.94 billion last year.

Costco’s net income attributable climbed to $1.22 billion, or $2.75 per share, up from $838 million, or $1.89 per share a year ago. That was higher than the Wall Street consensus estimates of $2.31 per share. The company’s total revenue jumped 21.5% to $45.28 billion, beating the market expectations of $43.64 billion.

Costco Wholesale shares rose over 3% so far this year. The stock closed 0.5% higher at $387.5 on Thursday.

Analyst Comments

“We plan to lift our $332 per share valuation of wide-moat Costco by a mid-single-digit percentage after it posted strong third-quarter (ended May 9) earnings. Its 21% revenue growth impressed considering the chain lapped the early days of the pandemic (which included significant customer stock-up activity), but we mostly attribute the results to transitory factors,” noted Zain Akbari, equity analyst at Morningstar.

“So, our long-term forecast still calls for mid-single-digit percentage sales growth and 3%-4% adjusted operating margins. We suggest investors seek a more attractive entry price, particularly considering elevated uncertainty as the customer habits normalize,”

Costco Wholesale Stock Price Forecast

Twenty-two analysts who offered stock ratings for Costco Wholesale in the last three months forecast the average price in 12 months of $400.60 with a high forecast of $445.00 and a low forecast of $325.00.

The average price target represents a 3.38% increase from the last price of $387.50. Of those 22 analysts, 17 rated “Buy”, five rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the stock price forecast of $410 with a high of $520 under a bull scenario and $270 under the worst-case scenario. The firm gave an “Overweight” rating on the apparel retail company’s stock.

“COST’s results have consistently been among the best in Retail. Over the past decade, COST has delivered ~6% comps and ~10% EBIT growth on average. It is rare to find a business with COST’s solid comp/membership growth, while relative e-commerce insulation differentiates its value proposition from other retailers,” noted Simeon Gutman, equity analyst at Morgan Stanley.

“We are Overweight even as the stock trades at an elevated valuation given COST’s scarcity value, safety, and scale. In the near-term, we expect incremental sales uplifts from COVID-19 disruption, and earnings power looks stronger despite COVID-19 expenses.”

Several other analysts have also updated their stock outlook. Cowen and company raised the target price to $440 from $410. RBC lifted the target price to $453 from $425. CFRA upped the target price by $55 to $375. Raymond James increased the target price to $415 from $410. JPMorgan raised the target price to $420 from $410.

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