BMO Capital Cuts Price Target Following Costco Wholesale's (COST) January Sales Miss

February 4, 2016 1:39 PM EST
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Price: $392.18 --0%

Rating Summary:
    23 Buy, 11 Hold, 1 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 3 | Down: 4 | New: 13
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BMO Capital maintained an Outperform rating on Costco Wholesale (NASDAQ: COST), and cut the price target to $170.00 (from $175.00), following the company's reported January sales. Costco’s Jan 2016 base comps (ex-fuel) grew 1% in the U.S., coming in below consensus estimates of +3.6%.

Analyst Kelly Bania commented, "Costco’s Jan 2016 base comps (ex-fuel) grew 1% in the U.S. (below cons of+3.6%). Excluding the drag from a Superbowl timing shift (0.75%) and the extreme weather (1%) in the Northeast/Midwest (Storm Jonas), we estimate US base comps would have been near 3%, still slightly weaker than recent trends and below our F2Q16 forecast of 5% for the quarter. On the positive side, Jan base comps (ex-FX)were stronger than our model +11% in Canada and +10% in other international,well ahead of our model which assumed 7% and 5%, respectively. Importantly,reported customer traffic grew +3%, but adjusting for the Superbowl and weather shifts, suggests traffic closer to +4.25%, reflecting a slight underlying acceleration from the ~3% traffic trends in recent months (see Exhibit 3). And despite deflationin U.S. Foods, food inflation in International countries appears to be tracking stronger, supporting +MSD% comps in fresh foods and +LSD% comps in food &sundries (See Exhibit 2 for category trends). We are lowering our FY2016E EPS to by $0.09 to $5.28 to reflect the slightly weaker comp trends in the U.S. partially offset by slightly stronger trends International (total company F2Q16 base comps revised down to 4% from 5%) as well as higher FX pressure ($0.04) as we now forecast a ($0.30) drag to EPS in FY2016 (vs. $0.26 prior). On the positive side,ongoing oil volatility is likely to support stronger-than-expected retail fuel gas margins near term. Additionally, we continue to see positive catalysts for COST shares in 2016, including the transition to Citi/Visa (now delayed to June time frame)and potential for a late 2016/2017 membership fee income hike. And while we expect noise in membership trends until the credit card transition this summer,Costco’s recently launched Living Social promotion ($55 for gold star membership+ $20 Costco Cash card) could support a re-acceleration in membership near-term(offer expires 8/31/2016)."

For an analyst ratings summary and ratings history on Costco Wholesale click here. For more ratings news on Costco Wholesale click here.

Shares of Costco Wholesale closed at $146.70 yesterday.



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