Analyst reveals new Costco stock price target ahead of earnings

If you’re ever in San Diego, you may want to take a walk down on Morena Boulevard. 

That’s where you’ll find the first store in what would become Costco  (COST) – Get Free Report, the membership-only big-box warehouse club retail chain.

The company was known as Price Club back on July 12, 1976, when the warehouse, which had once been an airplane hanger belonging to billionaire Howard Hughes, opened for business.

The facility, Costco Warehouse #401, is still in operation, but you can’t go in unless you’re a member.

Costco, which has a market capitalization over $3 currently operates 874 warehouses, including 602 in the U.S., and has about 129.5 million members as of November. 

Analysts update their price target for Costco ahead of earnings.

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Costco keeps prices low

The company has increased its sales and market share by keeping prices low on essentials. Members benefits from incentives offered like a yearly 2% reward on qualified purchases at its warehouses.

Overall, the warehouse club and supercenter industry brings in more than $500 billion U.S. dollars in revenue per year and employs over 1.5 million people across the country, according to Statista

Related: Costco unveils executive change that could trigger membership fee boost

In addition to Costco, some of the other big players in the sector include Walmart’s  (WMT) – Get Free Report Sam’ Club, BJ’s Wholesale Club  (BJ) – Get Free Report and Meijer.

Among other items, Costco sells electronics, computers, furniture, outdoor living, appliances, jewelry and groceries. And the pizza available in the food courts have proven to be very popular.

“The existence of Costco is one of the best defenses of free markets that has ever existed,” one person said on X, formerly Twitter. “You go in there, you get a giant box of medjool dates for $8, a large pizza for $10, a hotdog and a diet coke for $1.50 It all just makes sense.”

“Costco pizza is bomb,” another commenter said. “That is the post.”

But they offer other things as well. 

During the first quarter, Costco sold over $100 million in gold bars, as well as an index card autographed by Babe Ruth for $20,000.

“In addition to eGift cards on everything from restaurants to golf to airlines, we just, in the last couple of weeks, launched a Disney eGift card valued at $250 for $224.99,” Chief financial officer Richard Galanti told analysts during the company’s earnings call in December. “And for you, last-minute shoppers out there, there’s a Mickey Mantle autographed 1951 rookie card in nearly perfect condition, and it’s on sale  online for $250,000.”  

That’s quite an assortment, but there’s a catch. You need to be a member.

Costco’s customers pay between $60 and $120 a year for membership and those fees are one of company’s most-important profit drivers, generating around $1.08 billion in sales over the three months ended in October.

Costco ‘operating well’, analyst says

There has been some feeling that Costco might increase membership fees, but Galanti was noncommittal.

“I’ll use my standby answer, my pat answer, it’s a question of when, not if,” he told analysts. “But at this juncture, we feel pretty good about what we’re doing.” 

Galanti, who has served as CFO since 1993, will step down in March, the company said Feb. 6, with his opposite number at grocery giant Kroger  (KR) – Get Free Report, Gary Millerchip, named to succeed him.

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Costco also got a new CEO in Ron Vachris at the start of the year after announcing in October that Craig Jelinek will step down from the role.

The company is scheduled to report second-quarter earnings and February sales results on March 7. Analysts surveyed by FactSet expect Costco to report earnings of $3.58 per share on sales of $58.8 billion.

A year ago, the company earned $3.30 per share and revenue of $55.3 billion.

Telsey Advisory is impressed, and thinks shares can head higher. They raised the firm’s price target on Costco to $750 from $700, while keeping an outperform rating.

The research firm expects to see digital sales growth, traffic and ticket size up, and outperformance in the Food & Sundries and Fresh Foods categories, the analyst tells investors.

Telsey Advisory believes Costco is executing well in the current uncertain operating environment and believes the company will remain a share gainer and continue generating solid earnings growth in 2024.

Their stock price target boost comes days after Oppenheimer analyst Rupesh Parikh raised his firm’s price target on Costco from $695 to $760, while maintaining an outperform rating.

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