BMO Capital Maintains Outperform on Costco Wholesale (COST) Following 3Q Results

BMO Capital Maintains an Outperform rating and $165 price target on Costco Wholesale (NASDAQ: COST) following 3Q15 results. Costco reported F3Q15 EPS of $1.17 vs. Consensus of $1.15.

Analyst Kelly Bania commented, "Considering the amount of external pressures during the quarter—including port delays, deflation in certain produce categories (5% of sales or ~$5.5B in annual salesfor COST), inclement weather, FX (-$0.06 headwind to EPS vs our -$0.07 fcst), and a near-normalization of gas margins (gas profits only +1¢ favorable to EPS on a y/y basis)—we believe Costco’s F3Q15 EPS results were very solid. F3Q15 highlights are underscored by EPS growth of 9% y/y, core GM% +10 bps; customer traffic +3.5%, ex-FX membership fee income growth of +7%, and continued executive membershippenetration (15.7 mm or +250k vs. an avg of ~+285k last 10 quarters). Importantly, we continue to believe that Costco’s growing presence in organic foods (now at a run rate of $4B+ compared to just ~$3B 6-9 months ago and possibly now already eclipsing industry-leader Whole Foods, which we estimate at about ~$3.6B) provides several near and long-term advantages, including: 1) slightly higher GM% supporting a favorable mix-shift; 2) supports ongoing customer traffic growth outlook (given the appeal of ~40% lower prices vs. industry leaders); 3) supports an outlook for Costco to connect with an increasingly important consumer group—millennials—where we believe Costco remains underpenetrated currently (though the gap for Costco's average member age vs. U.S. average is already trending down slightly)."

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 $144.26 yesterday.

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