Monday, Loop Capital maintained a Buy rating on Costco Wholesale (NASDAQ:COST) and increased its share price target to $890 from the previous $840.
The adjustment comes after the company's new CEO provided insights during the earnings call, which led to a more optimistic view of the company's long-term margin improvements.
The firm's analyst cited improvements in the SG&A rate and the influence of Costco's new CEO's comments as key drivers for the raised price target.
Based on a discounted NOPAT (Net Operating Profit After Tax) model, the analyst expects more sensitivity to these longer-term margin improvements, which are now forecasted to be more significant than previously anticipated.
Costco's earnings report revealed that same-store sales (SSS) growth was slightly above expectations, with a core increase of 6.5%, 10 basis points higher than estimated. This growth was particularly strong in international markets, contributing to the overall positive performance.
In the United States, the core comparable sales for the quarter rose by 6%, while other international markets and Canada saw increases of 9% and 7%, respectively.
E-commerce also showed a robust expansion, with a 21% growth rate. This is attributed to Costco's ongoing efforts to refine its consumer interface and offer a wider selection of products online.
The company's new CFO has introduced a revised presentation format that includes forecasted unit growth expectations by region for the fourth fiscal quarter, aligning with Loop Capital's projections.
Loop Capital emphasizes that Costco's stock is likely to perform well under various macroeconomic conditions, reinforcing the firm's confidence in maintaining a Buy rating for the wholesale giant.
InvestingPro Insights
Recent metrics from InvestingPro provide a deeper look into Costco Wholesale's financial health and market performance. With a substantial market cap of $359.08 billion, Costco stands as a significant force in the retail sector. Notably, the company boasts a high P/E ratio of 52.15, which signals investor confidence in its earnings potential, although it does trade at a premium relative to near-term earnings growth. The data also reveals a consistent revenue growth, with the last twelve months as of Q2 2024 showing a 6.16% increase, indicating steady business expansion.
InvestingPro Tips highlight several strengths for Costco, such as holding more cash than debt and the ability to cover interest payments easily, which is a sign of financial stability. Additionally, Costco has been a reliable dividend payer, maintaining payments for 21 consecutive years, with a notable dividend growth of 28.89% in the last twelve months as of Q2 2024. For investors looking for more insights, there are over 17 additional InvestingPro Tips available, which can be accessed with the coupon code PRONEWS24 for an extra 10% off a yearly or biyearly Pro and Pro+ subscription.
It's worth noting that Costco is trading near its 52-week high, with the price at 98.83% of this peak, reflecting strong market sentiment. Moreover, the company has experienced a large price uptick of 39.35% over the last six months, alongside a high return over the last year of 62.69%, underscoring its robust performance in the stock market.
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