Costco (COST) Tops FQ4 Estimates, Seen as Another 'Impressive' Quarter

September 24, 2021 6:21 AM EDT
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Price: $470.73 +0.78%

Rating Summary:
    23 Buy, 11 Hold, 1 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 10 | Down: 21 | New: 36
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Shares of Costco Wholesale (NASDAQ: COST) are up nearly 1% in pre-open Friday after the company delivered better-than-expected fiscal Q4 results.

Costco reported Q4 EPS of $3.76 to top the analyst estimate of $3.57. Revenue for the quarter came in at $62.68 million versus the consensus estimate of $61.3 million.

Telsey Advisory Group analyst Joseph Feldman raised the price target to $480.00 per share from the prior $470.00 following an “impressive quarter.”

“In 4QF21, we were encouraged by: 1) solid membership fee income growth of 11.6% (9.7% in CC), with the US & Canada and worldwide renewal rates both sequentially up 300 bps to 91.3% and 88.7%, respectively; 2) e-commerce growth of 11.2% (8.9% in CC) on top of an increase of 90.6% (91.3% in CC) in 4QF20, helped by new products, digital marketing, and faster delivery via Costco Logistics; 3) the return of ancillary businesses, with strong growth of gas, food court, and travel bookings; and 4) strong total expense leverage of 72 bps, despite a permanent increase in hourly wages. The one blemish in the quarter was the core-on-core gross margin decline of 40 bps due to lapping Fresh Foods gains from last year,” Feldman said in a note sent to clients.

“Costco should remain a share gainer, with its solid sales, high membership renewal rates (~111.6MM members), and square footage growth of LSD. In FY22, Costco should continue to generate solid EPS growth, driven by a MSD comp, MSD-HSD membership fee income growth, healthy digital growth, and lapping COVID-19 related costs,” Feldman concluded.

BMO analyst Kelly Bania reiterated a Top Pick view on COST and the $515.00 per share price target as the company remains well-positioned both near-term and long-term.

“COST reported strong earnings to finish to F2021. Importantly, Costco's renewal rates accelerated to the strongest levels in 15+ years and Executive penetration is accelerating, which, along with an inflationary environment, which we believe pushes more consumers into Costco's doors overtime, all bodes well for a continued strong outlook and potential comp upside to our top-line forecasts. Costco remains our top pick among Fab-4 large-cap retailers,” Bania wrote in a note sent to clients.

“We believe the company should benefit from: 1) lower reliance on gross margin-mix shift; 2) more exposure to higher-end consumers, where we believe spending tailwinds could remain stronger; 3) potential upcoming membership fee raise catalyst (possibly late 2022); 4) expanding omni-channel offerings (including fresh and frozen ship to home, new web & app features coming); & 5) longer-term levers, such as pick-up services (curbside test halted for now),” Bania concluded.

Morgan Stanley analyst Simeon Gutman raised the price target on Costco to $510.00 (from $500.00) while maintaining an Overweight rating.

Shares of COST are up 19.1% YTD.

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