We Are Lifting Our Price Target for This Holding Once Again
As this name continues to prove its value amid inflation fears, some prudent register ringing may be on the horizon.
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We are once again lifting our Costco COST price target following the company’s robust January sales report, taking it to $1,110 from $1,050.
Net sales for the month rose 9.2% year over year to $19.51 billion led by significant adjusted comp sales figures across all four of its reporting lines. For the U.S., comp sales climbed 9.8%, 10.8% in Canada, and 9.8% in the Other International sector while e-commerce climbed a whopping 15.2% versus year-ago levels. Our view has been and remains that Costco is extremely well positioned as consumer look to extend their shopping dollars, especially as they continue to face elevated prices for food and other items.
We suspect we aren’t alone in seeing recent articles about surcharges for eggs, the impact of higher cocoa prices and other items. Those pain points and others play in Costco’s favor as do its efforts to expand its digital commerce platform. Based on the 17.3% adjusted comp sales figure for the 22 weeks ending February 2, we would say those efforts are paying off handsomely.
Checking in on the number of open warehouse locations, entering February that stood at 897 compared to 874 a year ago. That expansion and more to come as we move through 2025 bodes well for continued membership fee revenue growth even before we mix in the existing memberships renewing at higher rates.
The only issue we have with Costco is the year-to-date run in the shares has landed them deep into overbought territory, measured by their relative strength index near 79. That and just over 6% upside to our new target means we can’t in good conscience be buyers of the shares at current levels. A pullback to support near $961 would make for a far better entry point.
However, we suspect we will not be alone in lifting our price target today. Should that push the Portfolio’s COST position size meaningfully higher, the prudent move may be to take some COST chips off the table and lock in some of the big gains since early August. Should we see further tariff action on China by Trump, that would likely accelerate a timetable for such a move.
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At the time of publication, TheStreet Pro Portfolio was long COST.
