By Carly Forster
Wholesale retailer Costco (NASDAQ: COST) announced its second quarter fiscal 2015 financial results on Thursday, March 5th, posting one of its strongest quarters in recent years.
Highlights from the report include earnings of $1.35 per share, beating analysts’ consensus estimate of $1.18 per share and up from $1.05 the same quarter a year prior. Revenue was reported at $27.45 billion, marking a 4% increase year-over-year.
Costco Wholesale Corporation (NASDAQ:COST) profited from a tax benefit of $57 million, or $0.13 a share, from its special $5 cash dividend in February. However, the company was also negatively impacted by $14 million, or $0.03 a share, due to “an ongoing income tax matter,” according to Costco’s CFO, Richard Galanti.
Many believe Costco’s exceptional quarter was driven by the fall in gas prices. The company was slower to change the price of fuel it charged customers than the rate in which fuel costs were dropping. In addition, consumers were left with more money to spend.
In other Costco news, the company revealed on March 2nd that it will replace American Express (NYSE:AXP) as its only accepted credit card with Citigroup Inc (NYSE:C) and Visa Inc (NYSE:V) starting in April 2016.
On March 6th, Cowen and Company analyst Oliver Chen maintained an Outperform rating on Costco with a $165 price target following the company’s stellar Q2 results. He noted:
“We believe Costco is well positioned to continue delivering double-digit earnings growth over the near to medium term driven by square footage growth, steady membership revenue growth and positive same-store sales comps. Costco's higher income customer base (average household income of approximately $96,000) is faring better economically than low- to middle-income consumers, who continue to struggle with wage growth. We believe superb price/value, luxury product and streamlined assortment helps drive a sustainable high-margin membership stream."
Overall, Oliver Chen has a 51% success rate recommending stocks and a +11.8% average return per recommendation. He has rated Costco 3 times since February 2013, earning a 50% success rate recommending the company and a +6.4% average return per COST recommendation.
Separately on March 6th, UBS analyst Michael Lasser issued a Hold rating on Costco with a price target of $153. He reasoned:
“With MFI coming in slightly below UBS and the Street, COST again beat expectations by a comfortable margin on retail operations. Excluding MFI, COST's operating income was $295 mm, 30 percent ahead of our estimate of $227 mm due to the gross margin beat. GM was the highest it has been since 1Q'11. We think it likely continued to benefit from lower fuel prices and the resulting impact on mix, as well as from COST's ability to keep a bit more of the margin on fuel.”
Michael Lasser has an overall success rate of 72% recommending stocks and a +15.6% average return per recommendation. He has rated Costco twice with Neutral ratings since December 2014, earning no success rate nor average return.
On average, the top analyst consensus for Costco on TipRanks is Hold.
Disclosure: All Costco recommendations sourced from TipRanks.