Costco Wholesale (COST): Very Limited Card Disruptions - UBS
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UBS analyst, Michael Lasser, noted that on Monday, COST made the switch to Visa in the US. The analyst followed up by calling 25 warehouses and took a look at COST’s Facebook page & found 107 comments of dissatisfaction. Regarding the warehouses, most noted disruptions have been isolated. Over 11m cards were issued, so he interpreted the limited signs of distress as encouraging.
COST took precautionary measures to minimize the pain. For example, we heard some customers hadn't received new cards, but COST has stands set up in many stores to provide temp cards (& still allow CC rewards). Further, COST minimized activation issues by giving the option to self-activate (online/phone) or activate by swiping their first transaction in store. While the mild disruption suggests June sales expectations should be held in check, these issues should be resolved quickly.
Other cards matching Citi Visa's terms should provide an incremental benefit Citi is the bank behind COST's new PL CC but other Visa issuers (with no relationship with COST) have improved their own CC terms to help gain COST shoppers. For example, BAC recently improved its BankAmericard Cash Rewards card to feature 2% cash back on warehouse card purchases (up from 1%). Further, Chase Freedom extended its 5% cash back offer in warehouse clubs from June 30 to the end of the year (Chase Freedom wasn’t accepted at COST previously as it's a Visa as well). These offerings further enhance the value proposition for COST’s customers.
No change to Buy rating or price target of $180.00 .
Shares of Costco Wholesale closed at $158.12 yesterday.
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