Analysts at Jefferies have reiterated their ‘Buy’ rating and upped their price target from US$575 to US$610 for Costco Wholesale Corporation (NASDAQ:COST) following its strong fourth quarter results with both revenue and adjusted earnings per share beating the consensus expectation.
Costco shares traded up 2% at US$564.13 shortly before the market close on Wednesday.
The analysts believe Costco is well-positioned for further market share gains.
“Costco is a defensive name by nature due to its membership model that generates predictable sales and profits, an attractive value orientation, a higher-income customer, and a relatively significant penetration of consumables as a percentage of sales,” they wrote.
“Additionally, the company continues to open new clubs in the U.S. and has a meaningful runway for ongoing international expansion, notably China. Further, we believe Costco could raise its membership fee in the future, providing upside to estimates ahead.”
They noted Costco should benefit as consumers continue to adjust to higher grocery prices, making its value proposition even more attractive.
They also pointed to the fact that the company has a long history of stable-to-slightly-rising earnings before interest, taxes, depreciation and amortization (EBITDA) margins over time.
Highlights from Costo’s 4Q were the continued downward trend in inflation, uptick in domestic membership renewals, persistence in its warehouse expansion plans, and new technology advancements, such as an app that allows shoppers to check in-store inventory levels and virtual try-on glasses, the analysts wrote.
But they noted that, on the flip side, Costo’s selling, general and administrative (SG&A) rate as a percentage of net sales expanded year-over-year.
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