Why We’re Sticking With Our $950 Price Target for Costco

*While many across Wall Street are lifting their Costco price targets, ours remains $950

*The upcoming longshoreman port strike could be disruptive to retailers, including Costco

*Benefits of the company’s recent membership price hike won’t be felt for a few quarters

*Catalysts we’re watching for our COST price target and two rating

Heading into Costco’s COST quarterly earnings report, we fully expected to come out of it boosting our price target like so many across Wall Street are doing on Friday.

Some of these increases, like the ones from Loop Capital and Telsey Advisory to levels near $1,000 are levels above our $950 target, but others are only lifting their targets to $880 to $980.

While Costco delivered a solid quarter with EPS ahead of expectations and revenue either matching consensus forecasts or coming in at an ever-so-slight miss, depending on the source, we are going to keep our $950 target in place. This reflects near-term port risk and back-end loaded revenue benefits this year from its September 1 membership price increase.

We continue to see the company as extremely well positioned, especially given the findings in this morning’s economic data, as we approach the holiday shopping season, and it continues to expand its warehouse footprint. However, during the company’s earnings call, management shared that the benefits of the recent membership price hike will be back-end loaded in the new fiscal 2025 year that we have just entered. The full benefits probably won’t be felt until fiscal 2026. The reason behind this is that the company is investing in the business, including bringing more higher-margin Kirkland brands into its offering. Because of the higher-margin profile for its Kirkland products, this could be a margin enhancer a few quarters out.

There is also the upcoming longshoreman strike and the impact on East and Gulf Coast ports. This was a topic on the earnings call, and Costco’s thinking on this matches our own: Having prepared for it, they are watching it, but it will ultimately come down to how long of a strike it is. Costco is an excellent operator, but there is the risk of softer year-over-year sales comps coming because of the strike.

It’s been the string of strong comp sales over the last few months and the expectation for the membership fee price increase benefit that have driven COST shares higher from $720 in early May to the recent peak near $920 earlier this month.

Costco aims to add another 26 net new locations in the coming year after opening 30 over the last 12 months, 14 of which opened in the August quarter. These recent and projected openings should help drive further gains in the company’s membership, which included 76.2 million paid households, up 7.3% year over year, and 136.8 million cardholders, also up 7% year over year, exiting August. To that, we can add the 35.4 million paid executive memberships, up 9.6% versus last year.

In thinking about those figures, let’s remember the membership price increase went into effect on September 1, so it makes sense that as newer memberships anniversary, Costco will see more benefits from that price increase. This means that, as Wall Street adjusts its EPS expectations for the coming year, those adjustments will be back-end loaded.

Those factors are keeping our price increase at $950, and the upside to that is seeing us stick with our two rating. If we were to see COST shares pullback near $850, that could be a reason for us to revisit that rating, but it would depend on if the catalyst for that move was the market or something tied to the potential port strike.

Other potential catalysts that could lead us to revisit both our price target and rating are Costco’s upcoming monthly sales report. If the company is able to overcome any port strike impact and still deliver comp sales that point to ongoing wallet share gains, that would not go unnoticed by us or others on Wall Street.

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At the time of publication, TheStreet Pro Portfolio was long COST.