After Eye-Popping Sales, We're Boosting Our Costco Price Target
Costco’s May sales report showcased continued wallet share gains and we are introducing a new price target.
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*We are boosting our price target on Costco to $880 from $830
*The company’s May sales report points to continued consumer spending share gains
*Costco’s warehouse footprint expansion plans are tracking, boding well for further membership revenue growth
We are boosting our price target on Costco (COST) shares to $880 from $830 following last night’s May sales report that showed the warehouse company continues to take consumer wallet share. At a time when many retailers are bemoaning the state of the consumer, Costco COST reported eye-popping May sales that rose 8.1% year-over-year to $19.64 billion. Comp sales were up across the board for the month and came in at +6.4% backing out gasoline prices and foreign exchange.
To us, the figure that really stood out, especially following recent comments from Target TGT, Kohl’s KSS and others, was Costco’s U.S. May comp sales, which rose 5.8% and 5.7% excluding gasoline prices and foreign exchange. The other notable figure was Costco’s e-commerce business, which rose 15.4% year-over-year.
Inside these monthly reports, we also like to check in on the company’s open warehouse count. It allows us to keep tabs on management’s expansion plans, but also gives us an idea as to potential growth for the important and market-differentiated, high-margin membership fee revenue stream. Exiting May, Costco had 879 warehouses, up from 853 a year ago and 871 exiting 2023. These openings put the company on the path to the targeted 33 new locations for this year, up from 23 last year.
We expect that others across Wall Street will be boosting their COST price targets as well, and we will continue to update ours as the company delivers upcoming monthly sales reports. The much-anticipated membership price increase would be another reason for us to do so.
In terms of the shares, even after our taking some very profitable chips off the table earlier this week, the portfolio’s COST position is one of its largest near 4% of the portfolio’s assets. This means we are not likely to add further, but we’ll have a technical look at the shares to help newer members pinpoint potential entry points.
At the time of publication, TheStreet Pro Portfolio was long COST.
