On Friday, Evercore ISI made an adjustment to its outlook on Costco Wholesale (NASDAQ: NASDAQ:COST), increasing the price target to $925 from the previous $915, while maintaining an Outperform rating on the stock. This move comes after the retailer demonstrated a robust performance with a 7.1% rise in Global Core Comparable Sales, which slightly outpaced the three-month trend.
In the U.S. market specifically, Costco's Core Comparable Sales grew by 6.7%, a rate that is double that of the overall U.S. retail sales growth.
The firm noted Costco's strong momentum heading into the September membership fee increase, highlighting the company's ability to offer value during uncertain economic times. The retailer's success in discretionary categories, which saw low double-digit growth for non-food items, was also pointed out as a distinguishing factor that sets Costco apart from other retailers. This success is attributed to Costco's merchandising skills and the resilience of its core upper-income consumer base.
Another aspect of Costco's performance that was emphasized is the increase in foot traffic, with a 6.6% rise globally and 6% domestically. The company's e-commerce segment also showed significant growth, with a 23% year-over-year increase. Despite the stock's premium price, which is above the upper end of its historical 2-2.5 times norm, the firm believes that the premium is warranted.
The justification lies in Costco's continued market share gains, consistent traffic increases, and the anticipated positive impact of the upcoming fee increase, as reflected in the revised $925 base case price target.
InvestingPro Insights
Costco Wholesale's (NASDAQ: COST) latest financial metrics from InvestingPro paint a picture of a company with significant market strength and valuation considerations. With a robust market capitalization of $392.79 billion, the company trades at a high earnings multiple, with a P/E ratio of 54.59. This figure aligns closely with the adjusted P/E ratio for the last twelve months as of Q3 2024, which stands at 54.76. Despite trading at a high price/book multiple of 18.04, the company has shown a notable revenue growth of 7.75% over the same period, indicating a healthy expansion of its business.
InvestingPro Tips highlight that Costco holds more cash than debt on its balance sheet, which is a positive indicator of financial stability. Additionally, the company has maintained dividend payments for 21 consecutive years, showcasing a commitment to returning value to shareholders. Notably, 7 analysts have revised their earnings upwards for the upcoming period, suggesting confidence in Costco's continued financial performance. For readers looking to delve deeper into Costco's financials and future prospects, InvestingPro offers a wealth of additional tips, with 15 more insights available to guide investment decisions.
These data points and insights are particularly relevant as they support Evercore ISI's positive outlook on Costco. The company's ability to sustain a high valuation is backed by its strong revenue growth and analysts' upward revisions, while its financial stability is underscored by its cash reserves and consistent dividend payments. These factors contribute to the rationale behind the firm's increased price target and Outperform rating.
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