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Costco shares target raised by Loop Capital, cites growth and savings potential

EditorEmilio Ghigini
Published 06/14/2024, 09:47 AM

On Friday, Loop Capital increased its price target on Costco Wholesale (NASDAQ:COST) shares to $940 from the previous target of $890, while maintaining a "Buy" rating on the stock.

The firm's analyst highlighted a positive outlook on the company's growth and expense leverage potential after a recent store tour in Los Angeles. The analyst observed a team at Costco focused on value and volume, emphasizing store-level adjustments to enhance club-by-club relevance.

The decision to raise the price target is based on improved sales estimates and long-term savings on selling, general and administrative expenses (SG&A). Loop Capital has revised its fourth fiscal quarter same-store sales (SSS) estimates upward following better-than-expected performance in May. Additionally, the firm's discounted Net Operating Profit After Tax (NOPAT) model reflects more optimistic longer-term margin forecasts.

Costco's May core SSS growth reached 7%, surpassing Loop Capital's 6% prediction. International markets contributed significantly to this growth, with core comp growing faster abroad.

The U.S. core comp for May was reported at 6%, which was consistent with both the firm's estimate and the consensus. Other international markets experienced a 10% increase, outpacing both the firm's 8% estimate and the consensus of 7%. Canadian stores comped at 8%, also exceeding the estimated and consensus figures of 6%.

Ecommerce emerged as a strong performer for Costco, showing a robust 15% growth. The company has been actively enhancing its consumer interface and boasts a diverse selection, which has contributed to its ecommerce success. Loop Capital maintains that Costco's stock is likely to perform well across various macroeconomic conditions.

In other recent news, Costco Wholesale has experienced significant developments in its financial performance and strategic operations. The company reported an 8.1% increase in net sales for the month of May, reaching $19.64 billion, as well as a 6.9% rise in net sales for the first 39 weeks of the year, totaling $186.07 billion.

On the analyst front, Telsey Advisory Group maintained an Outperform rating on Costco, despite a mixed business outlook, and increased the price target for the company's shares to $900.00. Loop Capital also maintained a Buy rating and raised its share price target to $890 based on the company's long-term margin improvements.

Costco's operations in Meiwa, Japan have led to significant wage increases and potential economic revitalization in the rural town. The company's aggressive wage policy prompted local businesses, like the noodle shop chain Yamada-udon, to raise their hourly wages to compete for workers. This has resulted in increased wages and an influx of shoppers, contributing to economic growth in the region.

These are recent developments that reflect the company's financial performance and impact on local economies. While these developments are promising, they are subject to various factors such as economic conditions, competition, and consumer spending patterns. As always, investors are encouraged to consider these factors when making investment decisions.

InvestingPro Insights

Costco Wholesale’s robust performance is further underscored by key metrics from InvestingPro. With a substantial market cap of $375.04 billion, Costco maintains a strong financial position. Although the company trades at a high P/E ratio of 55.13, reflecting its premium valuation, this is somewhat tempered by a revenue growth of 6.16% over the last twelve months as of Q2 2024, signaling continued business expansion. Investors may also find reassurance in the InvestingPro Tips, noting that Costco holds more cash than debt on its balance sheet and has seen four analysts revise their earnings upwards for the upcoming period, indicating a positive sentiment among market experts.

For those considering an investment in Costco, exploring additional InvestingPro Tips could provide a more comprehensive understanding of the stock’s potential. There are 21 additional tips available on InvestingPro for Costco, which can be accessed with a subscription. Interested readers can benefit from an exclusive offer using the promo code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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