Put Costco Stock in Your Shopping Cart, Analysts Say. It’s Starting to Look Like a Bargain.
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Shopping carts are lined up in front of a Costco store
Mario Tama/Getty ImagesCostco Wholesale stock is on sale after its mixed earnings report, so investors who have been sidelined by its pricey valuation might want to jump in now, analysts say.
Costco (ticker: COST) is the third major retailer to lose ground after earnings. The company delivered another quarter of top-line and same-store sales growth, but its per-share earnings fell short of analysts’ expectations. The stock was off 1.6% to $313.85 in recent trading.
The case was similar at rival Walmart (WMT), which had a bottom-line miss last month and—like Costco—recently announced a wage increase. Target (TGT) had a stronger quarter, but investors still dinged the stock.
All three stocks were big winners amid the Covid-19 crisis, but some investors have worried that their advantage will erode as mass vaccination allows an economic reopening at some point later this year.
That said, analysts have been quick to defend the stock, particularly those who have felt the stock was a touch too expensive.
Among that camp, Guggenheim’s John Heinbockel reiterated a Neutral rating on Costco, but writes that “this miss wasn’t nearly as bad as it looked, driven mostly by temporal gas margins and COVID costs.” He notes the stock is off some 23% since November—compared with the S&P 500’s 4% gain—and notes “valuation is getting interesting.”
Nor were bulls deterred by the quarter, as they see the selloff as a buying opportunity, although price targets are moving lower.
RBC Capital Markets’ Scot Ciccarelli reiterated an Outperform rating while lowering his target to $399, arguing that “the price action in COST shares is significantly overdone …With the stock trading at a ~10% discount to its historical relative value, we believe COST shares should be in investors’ shopping carts.”
BMO Capital Markets’ Kelly Bania reiterated an Outperform rating while lowering her price target to $410. “Along with large-cap peers, Costco’s valuation has pulled back to a highly attractive entry point, particularly given Costco’s unmatched price/value equation. We also see the possibility for catalysts such as curbside, which is a lever Costco has yet to pull relative to peers.”
Write to Teresa Rivas at teresa.rivas@barrons.com