Membership-only warehouse chain Costco Wholesale Corporation (COST) recently announced better-than-expected results for the first quarter of Fiscal 2025, which ended November 24, 2024. COST shares have advanced 45% year-to-date, outperforming the 23% rise in the S&P 500 Index (SPX). Despite the strong rally so far this year, Wall Street analysts see continued upside in the stock due to the retailer’s impressive financials, solid e-commerce sales, and strength in memberships.
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Costco’s Recent Performance
Costco’s revenue grew 7.5% year-over-year to $62.2 billion, with comparable sales rising 5.2%. The company’s top-line growth reflected solid e-commerce business, strong sales of meat and produce as well as discretionary items like jewelry, luggage, and home furnishings.
The company’s membership fee income increased 7.8% to $1.2 billion. Interestingly, the company explained that the recent membership fee hike didn’t have much impact on the increase in the Q1 FY25 membership fee due to the effects of deferred accounting. In fact, the fee hike accounted for less than 1% of the membership fee growth in the quarter.
Costco’s earnings per share (EPS) jumped 13% year-over-year to $4.04 and reflected the inclusion of a tax benefit of $0.22.
Analysts’ Views on COST Stock
In a recent research note on the Food Retail space, BMO Capital analyst Kelly Bania reiterated a Buy rating on Costco stock with a price target of $1,175 (23% upside potential). Bania thinks that the sector has reached a “digital tipping point.” Despite concerns over price transparency and competition from Amazon (AMZN), the analyst believes that Costco should continue to create a niche for itself. Bania contends that the stock’s elevated valuation levels look justified, supported by its gross margins, online business, solid execution, and industry-leading sales per square foot.
Likewise, impressed with Q1 FY25 results, Morgan Stanley analyst Simeon Gutman raised his price target on Costco to $1,150 (20.4% upside potential) from $950 and reiterated a Buy rating, citing “yet another quarter of acceleration in fundamentals.” Gutman thinks that Costco’s value proposition, upgraded e-commerce capabilities, and membership fee income growth could drive further momentum through 2025.
Meanwhile, Citi analyst Steven Zaccone boosted the price target for COST stock to $1,060 (11% upside potential) from $800 and maintained a Hold rating. The analyst stated that Costco has a business model that is defensive yet offers a discretionary retail experience that attracts consumers irrespective of economic conditions. He is optimistic about BJ’s (BJ) and Costco, backed by their strong membership offerings, consistent same-store sales growth, steady margins, and long-term store growth potential. However, he remains on the sidelines on both Costco and BJ’s, as he believes the risk/reward profile is balanced at the current valuation levels.
Is Costco Stock a Buy, Sell, or Hold?
Wall Street has a Moderate Buy consensus rating on Costco stock, backed by 18 Buys versus eight Hold recommendations. The average COST stock price target of $1,066.04 implies 11.7% upside potential.
