Costco’s Impressive Performance Balanced by Steep Valuation: Hold Rating Maintained

Wells Fargo analyst Edward Kelly maintained a Hold rating on Costco (COST – Research Report) yesterday and set a price target of $1,000.00.

Edward Kelly has given his Hold rating due to a combination of factors concerning Costco’s current market standing. While Costco has demonstrated impressive performance with strong comparable sales growth, notably a 9.8% increase in January, surpassing the market consensus, the valuation poses a concern. Kelly acknowledges Costco’s robust traffic and category performance, particularly in Fresh Foods and Non-foods, which have shown significant growth.
Despite Costco’s high-quality and defensive nature in a challenging staples market, the valuation appears steep, with shares trading at approximately 55 times the consensus next twelve months price-to-earnings ratio. This elevated multiple suggests that the risk and reward are balanced at the current price levels, prompting the Hold rating. As such, the potential for further share price appreciation may be limited, aligning with Kelly’s cautious stance on the stock.

Kelly covers the Consumer Defensive sector, focusing on stocks such as Walmart, Kroger Company, and Target. According to TipRanks, Kelly has an average return of 8.9% and a 65.14% success rate on recommended stocks.