Analyst updates Costco stock price target ahead of earnings

This is what could happen next to Costco shares.

May 23, 2024 - 06:30

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Analyst updates Costco stock price target ahead of earnings

You'd better stock up on that rotisserie chicken.

People shop at Costco (COST) for a variety of reasons.

The Issaquah, Wash.-based company operates about 876 warehouses, including 604 in the U.S. and Puerto Rico. It offers low prices, free samples, and cheap food.

The warehouse club's members pay $60 a year for a basic Gold membership or $120 for an Executive membership, the latter of which comes with 2% cashback up to $1,000.

Costco reported a nearly 93% retention rate in the U.S. and Canada for the second quarter, with the worldwide rate coming in at 90.5%

Was the chicken a factor in these nifty numbers? Well, like the man said, it couldn't hurt.

The famous fowls have been a favorite among members, especially since they've been selling for only $4.99 for over a decade, and there are no immediate plans to raise the price.

Costco sold 137 million rotisserie chickens globally last year, more than Mexico's population.

Analyst adjusts Costco share price target ahead of earnings. (Photo by Kena Betancur/VIEWpress)
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Costco Wholesale's April sales rise

The company opened its own 400,000-square-foot poultry processing plant in Nebraska in 2019, which helps to cut costs.

The facility processes two million chickens a week from its network of chicken farmers and their own chicken houses.

Now, if all this talk of chicken makes you want to run out and pick up your own poultry, you may not have to leave your coop.

Costco recently launched a partnership with Uber Eats, through which members and non-members in some markets can have groceries delivered to their homes.

Bank of American Securities said, "The Costco partnership is a nice win for Uber (assuming positive economics), as Uber is actively trying to build out its grocery selection."

However, if you plan to munch on one of Costco's immensely popular birds for Memorial Day, you may want to get your order in before the holiday since Costco will close its stores on Monday, May 27--better known as Memorial Day 2024.

Earlier this month, Costco posted net sales of $19.8 billion for April, up 7.1% from $18.48 billion in the year-earlier period. Net sales for the fiscal 35 weeks were $166.44 billion, up 7% from $155.62 billion a year earlier.

The company said the results were hurt by the shift in the timing of Easter, which cut into total and comparable sales by a little more than 0.5%.

At the time, Loop Capital analysts raised the firm's price target on Costco to $840 from $820 and kept a buy rating on the shares following the April sales report.

Analyst: Costco 'well-positioned'

The firm said it was reducing its comps estimates slightly for the rest of the company's fiscal year as inflation continues to pressure consumers. However, Costco's e-commerce business grew a strong 15% as it continues to tout its selection and works to improve an outdated consumer interface.

In March, Costco posted second-quarter earnings of $3.92 a share, beating the LSEG consensus of $3.62.

Revenue totaled $58.44 billion compared with Wall Street’s call for $59.16 billion in sales. Membership fee revenue totaled $1.11 billion, up 8.2% year-over-year in the quarter.

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"We like the fact that we're performing well. We like the fact that most of all metrics are going in the right direction in our business right now," then-Chief Financial Officer Richard Galanti told analysts. "We've got plenty of runway left."

Costco is scheduled to report its third fiscal quarter earnings on May 30.

Oppenheimer raised the firm's price target on Costco to $850 from $805 and kept an outperform rating on the shares ahead of the quarterly results.

The firm said that it expects a largely in-line print with its third-quarter expectation of $3.67 per share unchanged compared with Wall Street's forecast of $3.71.

Costco shares have historically traded mixed on prints, so Oppenheimer would continue to take advantage of any profit-taking should it materialize.

Looking forward, the firm believes Costco remains well-positioned to continue gaining material market share driven by the company's superior value proposition and leading merchandising capabilities. That's good news even if you don't like chicken.

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