On Thursday, DA Davidson maintained a Neutral stance on shares of Costco Wholesale (NASDAQ:COST), with a consistent price target of $880. The firm's assessment followed a detailed analysis of the company's recent performance, which included an increase in total comparable sales (comps). These gains, however, were partially influenced by external factors such as Hurricane Helene and port strikes, which contributed to a 200 basis point (bps) benefit in the U.S. and a 150 bps impact overall.
Costco's total comps saw an apparent acceleration this month, but when adjusted for the extraordinary benefits, there was a notable decrease to 5.2% from the robust 7.1% of the previous month. U.S. comps stood at 4.5%, which was roughly consistent with the 4.7% seen last month. The analysis also took into account lower gas prices and excluded the impact of foreign currency fluctuations, resulting in U.S. comps rising by 7.3% in September, a slight uptick from August's 6.7%.
The broader picture showed that total comps, excluding the effects of foreign currencies and gas price changes, were up by 7.4%, an increase from the 7.1% reported in the previous month. Despite a fourth consecutive month of decline in average ticket size, the decrease was less than in the prior month, and traffic trends remained strong. DA Davidson noted that consumer spending appears stable, as shoppers continue to find value in Costco's offerings.
The firm raised its quarterly comp and earnings per share (EPS) estimates to 7.0% and $3.51, respectively, from the prior 6.0% and $3.49, based on the performance exceeding their expectations. Despite the positive results, DA Davidson reiterated its Neutral rating, citing the need for a more favorable entry point given Costco's premium trading multiple of 49 times next twelve months (NTM) consensus estimates. The $880 price target was reaffirmed, anchored to 45 times the firm's calendar 2026 EPS forecast.
In other recent news, Costco Wholesale has been making significant strides despite potential disruptions due to the ongoing dockworker strike at East Coast and Gulf Coast ports. The company reported a 9% increase in net income to $2.354 billion and a 1% rise in net sales to $78.2 billion in its Fourth Quarter 2024 Earnings Call. Moreover, e-commerce sales saw an impressive 18.9% increase.
Costco has also reported a significant 9% increase in its net sales for September, reaching $24.62 billion. The company's comparable sales figures showed varied growth across different regions, with a notable 22.9% surge in e-commerce. In response to the port strike, Costco has taken proactive measures such as pre-shipping holiday merchandise and is prepared to switch to alternative ports if necessary.
Analysts from TD Cowen, Evercore ISI, and BofA Securities have shown confidence in Costco's ability to navigate these challenges. TD Cowen revised its price target upward to $975, retaining a Buy rating on the stock. Evercore ISI affirmed its Outperform rating, maintaining a price target of $985.00, while BofA Securities increased its price target to $972.
On the other hand, Citi reiterated its Neutral rating on Costco, with a consistent price target of $800.00. The company's September comparable sales showed a significant increase of 8.9% compared to 7.1% in August. These recent developments underscore Costco's robust business model and its ability to adapt to varying market conditions.
InvestingPro Insights
To complement DA Davidson's analysis of Costco Wholesale (NASDAQ:COST), InvestingPro data provides additional context to the company's financial position and market performance. Costco's market capitalization stands at an impressive $402.8 billion, reflecting its strong position in the Consumer Staples Distribution & Retail industry. The company's revenue for the last twelve months reached $254.45 billion, with a modest growth of 5.02%, aligning with the stable consumer spending noted in the report.
InvestingPro Tips highlight that Costco has maintained dividend payments for 21 consecutive years, demonstrating consistent shareholder returns. This is further supported by a dividend growth of 13.73% over the last twelve months, although the current dividend yield is relatively low at 0.51%.
The stock's performance has been remarkable, with a 66.46% total return over the past year and a 26.19% return in the last six months. This aligns with DA Davidson's observation of Costco's premium trading multiple, as evidenced by the high P/E ratio of 54.68 and a price-to-book ratio of 17.05.
While these metrics suggest strong investor confidence, they also support DA Davidson's cautious Neutral stance. The high valuation multiples, combined with InvestingPro Tips indicating that Costco is trading near its 52-week high and at a high earnings multiple relative to near-term growth, suggest that the stock may be fully valued at current levels.
For investors seeking a more comprehensive analysis, InvestingPro offers 17 additional tips for Costco, providing a deeper understanding of the company's financial health and market position.
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