On Friday, Costco Wholesale's (NASDAQ:COST) stock price target was increased to $900 from the previous $900 by DA Davidson. The firm has maintained a Neutral rating on the retailer's shares, as the stock trades near its 52-week high of $1,007.80 and has delivered an impressive 50.61% return year-to-date.
The adjustment follows Costco's recent sales report, which surpassed expectations with a total of $62,151 million compared to the consensus forecast of $61,995 million, marking a 7.5% year-over-year growth.
With a market capitalization of $440.72 billion and an overall "GREAT" financial health score according to InvestingPro, the company continues to demonstrate strong operational performance. The company's Market Finance Income (MFI) aligned with consensus predictions, indicating solid growth, while gross margins exceeded expectations, contributing to earnings before interest and taxes (EBIT) that were higher than anticipated.
The earnings per share (EPS) beat by $0.26, largely due to items below the operating line, such as a $100 million tax benefit, which equates to $0.22 per share from incentive compensation, and an additional $0.04 per share from net interest income. These financial benefits played a significant role in the company's performance during the period.
Despite the positive sales results and financial benefits, DA Davidson has chosen to maintain a Neutral rating on Costco's stock. The firm's stance is influenced by the stock's current trading price, which is at 54 times the consensus estimates for Costco's fiscal year 2025 earnings. This aligns with InvestingPro analysis, which indicates the stock is currently overvalued based on its proprietary Fair Value model.
For investors seeking deeper insights, InvestingPro offers comprehensive valuation metrics and 18 additional expert tips for Costco, along with detailed Pro Research Reports available for over 1,400 US stocks. This valuation is a key factor in the decision not to shift to a more bullish position at this time.
The new price target of $900 is based on a 45 times multiple of DA Davidson's earnings per share forecast for Costco in the calendar year 2026. This revised target reflects the firm's assessment of Costco's financial outlook and market performance, with the company maintaining strong momentum as evidenced by its P/E ratio of 59.65x and robust financial health metrics.
Costco has been successful in engaging consumers with its offerings, as evidenced by the recent sales data. Nonetheless, DA Davidson's price target adjustment comes with a cautious outlook on the stock's future performance, given the high earnings multiple that it currently commands in the market.
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