Case Study: What Credible analysts are saying on Costco (COST) stock
Key Points
Costco (COST) shares fell by 1.71% this week. On a year-to-date basis, COST is now down by 14.47%. This compares favorably to the S&P 500 which is down by 17.97% during 2022 thus far.
Costco’s strong membership fees and discounted prices allow the retailer to continue to grow its top-line.
Costco posted fiscal 2023 Q1 earnings this week, missing Wall Street’s expectations on the top and bottom lines. COST posted Q1 sales of $54.44 billion, which was $240 million below estimates, representing 8.1% year-over-year growth. COST’s Q1 non-GAAP earnings-per-share totaled $3.10, missing consensus by $0.16/share.
54% of recent articles published by credible authors focused on COST shares offer a “Neutral” bias. 6 out of the 8 credible credible Wall Street analysts who cover Costco believe shares are likely to increase in value. The average price target being applied to Costco by these credible analysts is $548.63, which implies upside potential of approximately 13.5% relative to COST’s current share price of $483.02.
Russell Redman, a Nobias 4-star rated author: “Overall comparable sales in the first quarter rose 6.6% year over year (+7.1% adjusted, excluding fuel and foreign exchange), reflecting upticks of 9.3% in the United States (+6.5% adjusted) and 2.4% in Canada (+8.3% adjusted) and a 3.1% decline internationally (+9.1% adjusted).”
Howard Smith, a Nobias 4-star rated author: “The early slide came as the company reported net sales rising by 8.1% versus last year but said net income only grew 3% as expenses increased. Gross margin dropped year over year, but management noted a pretax charge of $93 million contributed to that drop.”
Performance
Event & Impact
Noteworthy News:
Nobias insights
Bullish Take:
Bearish Take:
Costco reported its fiscal 2023 first quarter results this week, missing Wall Street’s estimates on both the top and bottom lines. COST shares were down 1.71% last week, pushing their year-to-date losses down to -14.77%. Yet, despite the year-to-date weakness, Costco continues to show its defensive nature, outperforming theS&P 500 by a wide margin (throughout 2022 thus far, the S&P 500 is down by 17.97%).
COST Dec 2022
At the end of November, COST shares were trading for approximately $539.00, meaning that today’s $483.00 share price equates to a roughly 10% month-to-date sell-off during December. But, despite this recent weakness, the credible Wall Street analysts that the Nobias algorithm tracks believe shares are headed higher with an average price target that implies upside potential of approximately 13.5%.
Bullish Nobias credible authors:
Angela Harmantas, a Nobias 4-star rated author, published a post-earnings report at Proactive Investors last week, highlighting Costco’s top-line results. She wrote, “The retail giant reported net sales of $19.17 billion for the four weeks ended November 27, 2022.”
Harmantas continued, “That represented a 5.7% increase over the $18.13 billion figure reported last year, a much slower rate than the 7.7% increase reported in October 2022 and far less than the 10.1% in September 2022.” Finally, Harmantas touched upon Costco’s digital sales trends, writing, “Its e-commerce sales dropped 10.1% from October levels.”
Howard Smith, a Nobias 4-star rated author, also covered Costco’s earnings in an article published at the Motley Fool last week, focusing his attention on the company’s bottom-line and shareholder returns. Smith noted COST’s post-earnings sell-off, writing, “The early slide came as the company reported net sales rising by 8.1% versus last year but said net income only grew 3% as expenses increased. Gross margin dropped year over year, but management noted a pretax charge of $93 million contributed to that drop.” He continued, “That charge was "primarily related to downsizing our charter shipping activities," according to Costco CFO Richard Galanti.”
Smith also said, “He [referring to Galanti] also noted that without that charge, and not including gasoline inflation, gross margin for the quarter would have been very close to the prior-year period.” Despite the margin issues, Costco continues to pay a shareholder dividend and increase its shareholder returns.
Smith said, “The company raised its base dividend earlier this year by 14%, but its dividend yield is still just about 0.7%.” That yield level may not be enticing to every investor, but Smith also said that Costco has bolstered its regular dividend with special dividends during four out of the last nine years.
With that in mind, he continued, “In the company's conference call with investors, Galanti also indicated a special dividend was more likely than not on the way.” Smith said that Costco’s most recent special dividend came in at “$10 per share payment in 2020.”
Lastly, Russell Redman, a Nobias 4-star rated author, also covered Costco’s earnings results in a report that he published at Winsight Grocery Business. Looking at top-line results, Redman said, “Overall comparable sales in the first quarter rose 6.6% year over year (+7.1% adjusted, excluding fuel and foreign exchange), reflecting upticks of 9.3% in the United States (+6.5% adjusted) and 2.4% in Canada (+8.3% adjusted) and a 3.1% decline internationally (+9.1% adjusted).”
Redman went on to quote Galanti, stating, ‘“In terms of first-quarter comp sales metrics, traffic or shopping frequency increased 3.9% worldwide and was up 2.2% in the U.S.,” Chief Financial Officer Richard Galanti told analysts in a conference call late Thursday, according to a Refinitiv transcript from financial services site Sentieo.”
Galanti continued, “Our average transaction size was up 2.6% worldwide and 6.9% in the U.S. during the first quarter. And foreign currencies relative to the U.S. dollar negatively impacted sales by a little over 3%, while gasoline price inflation positively impacted sales by approximately 2.5%.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Regarding quarterly sales trends, Redman broke down the varying segments of Costco’s retail business, stating, “Top-performing departments by comp sales included gift cards, tires, candy and health-and-beauty aids, while majors — the largest merchandise department by sales, ranging from consumer electronics to appliances — fell by high single digits in comp sales.”
Redman also highlighted a unique aspect of Costco’s business - the membership subscription sales model - stating, “Membership fee income grew 5.7% to $1 billion in the first quarter but excluding the impact of FX would have risen by slightly over 9%, compared with the prior-year gain of 9.9%. Total paid member households increased to 62.5 million and the total cardholder count to 113.1 million quarter to quarter, both up 7% versus a year ago.”
Overall bias of Nobias Credible Analysts and Bloggers:
Overall, 54% of recent articles published by credible authors which focused on COST shares expressed a “Neutral” bias. But, the credible Wall Street analysts that Nobias tracks are more bullish. 6 out of the 8 credible analysts that Nobias follows who have expressed an opinion on COST shares believe that they’re headed higher. The average price target being applied to COST shares by these credible individuals is $548.63, which implies upside potential of approximately 13.5% relative to Costco’s current share price of $483.02.
Disclosure: Nicholas Ward has no COST position. Nicholas Ward wrote this article for Nobias at their request with the intention of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.