On Monday, Costco Wholesale's (NASDAQ:COST) stock price target was increased to $960 from the previous $900, while the Buy rating was reaffirmed. The company reported a notable 29% rise in earnings per share (EPS) to $3.78 for the 12-week fiscal third quarter, which concluded on May 12. This growth is based on generally accepted accounting principles (GAAP).
During the same quarter last year, Costco recorded a $0.50 charge related to the discontinuation of charter shipping activities, which were a response to supply chain disruptions. When this one-time charge is excluded, the EPS growth stands at 10.2%.
During the third-quarter earnings call, Costco's CFO Richard A. Galanti, also known as Mr. Millerchip, indicated that inflation has stabilized, which has led to members increasing their purchases of discretionary items. According to Galanti, inflation across all categories was effectively flat during the third quarter. He noted a slight inflation in food and sundries, but this was balanced by deflation in non-food items.
Costco's financial health appears robust, with the retailer boasting a high membership renewal rate of 93% in the U.S. and Canada, which contributes to its recurring revenue. Additionally, the company is recognized for having some of the highest traffic in the retail sector.
The growth of Costco's private-brand business, its strong cash position relative to debt, outright ownership of 661 sites and warehouses, and a financial stability that supports double-digit dividend growth, all contribute to the rationale behind the stock's premium valuation.
The upgrade in Costco's price target reflects confidence in the company's consistent performance and its ability to navigate through inflationary pressures while maintaining strong growth in key financial metrics.
In other recent news, Costco Wholesale has reported a notable 8.1% increase in net sales for the month of May, totaling $19.64 billion. This performance is accompanied by a 6.9% rise in net sales for the first 39 weeks of the year, amounting to $186.07 billion. The company's operations in Meiwa, Japan have led to significant wage increases and potential economic revitalization in the rural town.
Costco's aggressive wage policy prompted local businesses, like the noodle shop chain Yamada-udon, to raise their hourly wages to compete for workers. Loop Capital increased its price target on Costco shares to $940, maintaining a "Buy" rating, based on improved sales estimates and long-term savings on selling, general and administrative expenses.
Telsey Advisory Group also adjusted the price target for Costco shares to $900.00, maintaining an Outperform rating despite a mixed business outlook. These are recent developments reflecting the company's financial performance and strategic operations.
InvestingPro Insights
Costco Wholesale's (NASDAQ:COST) recent earnings report and the subsequent price target increase underscore its financial strength and market confidence. Delving into the data from InvestingPro, Costco's robust market capitalization of $384.38 billion and its significant earnings per share (EPS) growth are reflective of the company's solid performance. The company's price-to-earnings (P/E) ratio stands at 56.77, which, while high, is supported by its consistent earnings growth and strong market position.
Two notable InvestingPro Tips for Costco are the company's ability to hold more cash than debt on its balance sheet, indicating financial flexibility, and the fact that 11 analysts have revised their earnings upwards for the upcoming period, suggesting a positive outlook. Moreover, Costco has maintained dividend payments for 21 consecutive years, with a 13.73% dividend growth in the last twelve months as of Q1 2024, which is a testament to its financial stability and commitment to shareholder returns.
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