Costco Wholesale Corporation (NASDAQ:COST) (COST) is well positioned to meet consumer demand in a variety of different economic environments, according to analysts at UBS, who believe its shares are “underpriced at current levels” and worth the "COST" of admission.
Despite the optimism, they lowered their target price on the bulk retailer to $560 per share, from $575 previously, while also noting that the company’s solid growth prospects support its premium valuation.
After Thursday’s close, Costco reported third-quarter 2023 revenue and net income that miss the analyst consensus estimate, citing lower consumer spending due to elevated inflation and an uncertain job market.
The analysts, though, said the tone coming out of COST's 3Q results leaned more positive than negative, with the company continuing to drive strong traffic and membership retention rates in its latest quarter.
“The company has amassed a loyal membership following and best-in-class retention rates by creating a treasure hunt experience for its guests,” they wrote.
The UBS analysts added that they believe Costco is executing on its plan and taking steps to preserve its competitive positioning, having likely already taken selective pricing actions to drive the business.
They think Costco’s business model remains resilient even in the current tougher macroeconomic environment.
“As inflation has risen, Costco’s well-priced assortment, fuel savings, and limited markup on items have resonated with consumers looking for more value,” the analyst stated.
Furthermore, they view the enhancements Costco has made to its digital infrastructure as being supportive of the company’s eCommerce expansion.
Contact Sean at sean@proactiveinvestors.com