Costco Fights Off Amazon and Walmart and Gets Rewarded For It

(Bloomberg) -- Costco Wholesale Corp. rose to a record high Friday after the membership warehouse retailer’s August same-store sales topped analysts’ estimates, marking an “impressive” end to its fiscal year, according to analysts at both Telsey Advisory Group and Cowen.

Shares rose as much as 2.6% and are now up 49% so far this year, more than double the percentage gain of its closest pure-play rival, BJ’s Wholesale Club Holdings Inc.

Here’s what Wall Street had to say following the monthly sales report.

Telsey Advisory, Joseph Feldman

• “We see the August performance as quite solid, especially given the difficult comparison of 9.2% from last year and tough retail environment”
• Highlighted the strong traffic increase of 4.8%, including 4.9% growth in the U.S.; e-commerce sales grew about 24%
• Feldman has an outperform rating on the stock and believes Costco will remain a market share gainer, with “solid sales and traffic trends, high membership renewal rates, and square footage growth of low-single digits”; price target is $305

Stifel, Mark Astrachan

• “Current trends remain solid and we also think the results indicate Costco can coexist with large hardline competitors like Walmart and have limited cannibalization from Amazon”
• Believes “it is probable”that Costco declares a special dividend within the next couple of quarters; maintains his buy rating and boosted his price target to $310 from $289 to reflect the company’s “best in class” growth

Cowen, Oliver Chen

• Costco “continues to show its retail dominance as physical and digital momentum was again on display” in August and demonstrate “executional excellence in an increasingly difficult operating environment”
• The recent opening of its first store in China could be a catalyst for additional growth across the country over the next several years
• Costco is in a relatively better position to handle rising tariffs due to its large scale, which provides leverage when negotiating with vendors; global supply chain, which provides flexibility to re-position sourcing; has strong private brand equity; and Costco is more of an item retailer (vs category) which enables greater flexibility to shift products
• Rates outperform, price target $325

RBC Capital Markets, Scot Ciccarelli

• Yet another “impressive” sales result amid “robust” traffic growth
• Costco continues to grow both ticket and traffic due to its “sustained competitive pricing model,” which the analyst believes “creates a sizable competitive barrier and supports the robust valuation”
• Rates outperform; boosted price target to $321 from $299

Guggenheim, John Heinbockel

• Strength in the U.S. and the hardlines category drove the “solid” August sales beat
• Heinbockel is now more confident in his estimate for 9.3% Ebitda growth in the fourth quarter, above the Street’s 8.6% expectation
  • NOTE: Costco reports fourth-quarter results Oct. 3
• That said, shares “already sport” one of the highest valuations in large-cap retail, at 18x CY2020 estimated Ebitda, “a level buttressed further by the well-publicized opening of the Shanghai club”
• Remains neutral-rated

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