We're Lifting Our Costco Price Target After Big Announcement
The members-only warehouse reported a boost in revenue and made an announcement that could drive more gains in the future.
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*We are lifting our price target for the portfolio’s shares of Costco to $950 from $880.
*Costco’s June comp sales point to further wallet share gains, but the company finally announced its long-awaited membership fee price increase.
*We are also lifting our COST panic point to $750 from $725.
Last night, Costco COST reported that its June revenue rose 7.4% year over year to $24.48 billion, with comp sales up 5.3% across the company and 5.6% in the U.S. Adjusting comp sales for the impact of gas prices and foreign exchange, those figures go to 6.9% and 6.3%, respectively. It’s pretty clear that the company continues to win consumer wallet share and that should be made evident with next week’s June retail sales report on July 16, 2024.
Costco made two other announcements last night. One was about its next quarterly dividend of $1.16 per share that will be paid on August 9, 2024, to shareholders of record as of July 26, 2024.
The other, in our view and most likely that of the market, was far more meaningful, and it's one we’ve all been waiting for – the long-awaited membership price increase that will impact around 52 million memberships, a little over half of which are "executive."
Effective September 1, 2024:
- The annual membership fee will increase by $5 for the U.S. and Canada gold star (individual), business and business add-on members, to $65.
- Annual fees for executive memberships in the U.S. and Canada will increase from $120 to $130 and the maximum annual 2% reward associated with the executive membership will increase from $1,000 to $1,250.
That means the company will see close to a $400 million increase in its high-margin, recurring membership fee revenue. That figure doesn’t include new membership growth, as Costco continues to expand its warehouse footprint and win new members in existing markets. Plain and simple, we are going to see 2024 and 2025 and other EPS expectations move higher on this news, driving price targets, including ours higher.
Hence, our boosting our COST price target to $950 from $880. As we make this move, we will also lift our panic point to $750 from $725.
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At the time of publication, TheStreet Pro Portfolio was long COST.
