Costco's Stock Soars to Luxury Status Amid High Expectations for Upcoming Earnings
1min read Costco's $1.50 hot dogs are a symbol of value, yet its stock has now become a high-priced luxury for investors, showing significant gains recently. As the retail giant prepares to release its quarterly earnings next week, the elevated stock valuation translates into minimal tolerance for mistakes.
The company's shares saw a slight decline on Thursday following a report that November sales grew by 5.6% year-over-year, marking a slowdown from October. The total comparable sales increase fell to 3.1%, although core comparable sales—excluding fuel and currency impacts—rose by 4.9%. The offsets were attributed to the later timing of Thanksgiving and Black Friday, and currency fluctuations dragged total comparable sales by over 1%.
Nevertheless, analysts remain optimistic about Costco's stock. Corey's assessment from Jefferies sustained a "buy" rating and raised the target price to $1,145, reflecting an uptick in productivity, despite facing holiday timing shifts and exchange rate headwinds. According to FactSet, over half of the analysts have given a similar endorsement, though the average target stands at $969, slightly below current trading levels. The stock has climbed nearly 50% this year, outpacing the S&P 500's 28% gain.
Traditionally, Costco benefits from a premium due to its consistent performance and loyal, high-spending customer base. Its forward price-to-earnings ratio now stands at 54 times, far exceeding its five-year high and historical average of 38 times. In contrast, Walmart and Amazon stocks are valued at about 35 times projected earnings.
Bobby Griffin from Raymond James acknowledges the challenging valuation metrics but underscores the company's solid business fundamentals and potential for compounded growth and market share expansion. He maintains an "outperform" rating while increasing the price target to $1,030. Similarly, Mark Astrachan from Stifel projects sustained premium potential based on Costco’s superior membership income model and comparable sales growth, raising the target price to $1,000.
Despite inflation easing somewhat, the cost of living remains a priority for consumers, aligning with Costco's "value for money" proposition. The membership renewal rate surpassing 90% and the strategic price hikes this summer reinforce investor confidence. Yet the stock's lofty valuation implies limited room for error as investors anticipate the release of an immaculate quarterly report on December 12, reflecting on strong leadership under its new CEO and CFO.
