BMO Capital Remains Positive on Costco Wholesale (COST) After Meeting with Management
- Nasdaq closes up on tech stocks strength, as hawkish Fed limits S&P
- Dollar surges to two-month high on Fed rate-hike projection
- BofA Fund Manager Survey: 72% Says Inflation 'Transitory', 63% Expect Fed to Signal Taper Aug/Sept, 'Long Commodities' Now the Most Crowded Trade
- Oil falls from multi-year highs on firmer dollar, hike in UK COVID cases
- People Are Spending More Time Outdoors, Which Will Hurt Netflix (NFLX) This Quarter - KeyBanc
BMO Capital reiterates an Outperform rating and $165.00 price target on Costco Wholesale (NASDAQ: COST) following meetings with management. Analyst Kelly Bania expects ongoing IT modernization spending to remain elevated into calendar 2016 and into 2017.
Bania commented, "Following our visit, we feel even more confident about Costco’s longer-term margin outlook, supported by: 1) ongoing mix shift toward higher-margin international sales (we estimate a roughly +10bps/year); 2) favorable mix-shift benefit from increasing penetration of higher-margin online sales (~3% of sales);3) favorable mix shift toward both slightly higher GM% organics (~$4B annual sales), and private label Kirkland Signature (25% of sales); 3) a benigncompetitive pricing environment (our organic food pricing study shows Costcohas maintained its (40%) price advantage over Whole Foods, similar to thefindings in Dec 2014); 4) annual goals to grow margins within merchandisecategories (though fresh foods sometimes given a pass depending on inflation); 5)stabilizing outlook for health care expenses (cited as a pressure in five of the past seven quarters as HC expenses had been trending +10-11% y/y); 6) potential value from the new upcoming April 2016 Visa/Citi credit card arrangement (though weexpect the majority of savings to be passed onto members, not necessarily in theform of pricing); and 7) Costco’s ability to leverage expenses on a 4-5% comp. However, near-term, we expect ongoing IT modernization spending to remainelevated into calendar 2016 and into 2017 before savings begin to be realized 2-3 years out in areas such as transportation management. Lastly, Costco’s June 2015 base comps were reported +6% (ex-gas) in the U.S. (above Consensus for +5.2%) and +6% internationally (ex-FX) supported by strong traffic of “just under 4%”.We estimate QTD base comps in F4Q15 are running slightly ahead of our model at ~6% in the U.S. (vs. our 5% forecast) and ~7% Internationally (vs. our 6% forecast)."
Shares of Costco Wholesale closed at $142.72 yesterday.
Serious News for Serious Traders! Try StreetInsider.com Premium Free!
You May Also Be Interested In
- UPDATE: Morgan Stanley Downgrades Cimarex Energy (XEC) to Equalweight
- UPDATE: Morgan Stanley Upgrades Occidental Petroleum (OXY) to Overweight on Compelling Risk/Reward
- Morgan Stanley Downgrades EQT Corp. (EQT) to Equalweight
Create E-mail Alert Related CategoriesAnalyst Comments
Related EntitiesCiti, BMO Capital
Sign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!