On Friday, Stifel maintained a positive outlook on Costco Wholesale (NASDAQ: NASDAQ:COST), raising the stock price target from the previous $735.00 to $800.00. The company has retained its Buy rating after Costco reported second-quarter fiscal year 2024 (F2Q24) results showing earnings before interest and taxes (EBIT) that aligned with consensus expectations.
The retailer's sales for February increased by 5.6%, aligning with projections. Although sales in the U.S. were slightly below expectations, performance in Canada and International markets exceeded consensus.
Costco's core-on-core gross margin saw a year-over-year increase of 25 basis points, which marks an improvement over the average of the previous three quarters. This rise in gross margin was partly due to the company not repeating the higher markdowns experienced in the prior year.
The company addressed the potential for a membership fee increase, indicating it as a matter of when, not if. However, the lack of action to date suggests that Costco has other strategies to drive business growth.
These include anticipated market share gains in most of its businesses, a low-single-digit sales boost from new store openings, expansion of gross margin, and a slight increase in selling, general and administrative (SG&A) expenses, which is partly due to ongoing investments in wages.
Following these results, Stifel has slightly increased its earnings per share (EPS) estimates for fiscal years 2024 and 2025. The new price target of $800.00 is based on 28 times the forecasted 2025 earnings before interest, taxes, depreciation, and amortization (EBITDA). The firm suggests adding to positions in Costco shares on any market weakness, all other factors being constant.
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