On Friday, DA Davidson set a new price target for Costco Wholesale (NASDAQ:COST) shares, increasing it to $680 from the previous $600, while keeping a Neutral rating on the stock. The firm's analyst pointed out that Costco had outperformed in the previous year and continues to do so in 2024, which raised expectations and may be contributing to a slight sell-off following the company's recent results.
Costco's stock movement is often influenced by quarterly results, particularly gross margin trends and the extent of earnings per share (EPS) surpassing expectations. Still, the adjusted EPS was slightly below the consensus, as were gross margins and operating profit dollars. In addition, the absence of any announcement regarding a membership fee increase might be perceived as a missed opportunity for a catalyst.
Despite these figures not meeting consensus expectations, there were positive aspects to Costco's performance, including an acceleration in core gross margin gains and robust e-commerce sales. DA Davidson suggests that while investors are unlikely to react dramatically, resulting in a sharp decline in stock price, there might be a "pause that refreshes."
The revised price target is based on a 40x multiple of the firm's calendar 2025 EPS estimate for Costco. The analyst's neutral stance is primarily due to valuation considerations, despite the recent performance and positive aspects of the company's financial results.
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