Costco Wholesale (COST) PT Raised to $196 at Citi; 'Multiple Levels to Drive Growth'
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Citi analyst Kate McShane raised its price target on Costco Wholesale (NASDAQ: COST) to $196.00 (from $184.00) while maintaining a Buy rating, noting company's second quarter miss from merchandise margin decline and foreign currency headwinds, but suggesting management has multiple levers for driving growth.
McShane comments, "COST reported 1Q17 EPS of $1.17 (-5.5% y/y) below of our $1.35 estimate and the Street’s $1.36. Reasons we’d buy COST on a post-2Q dip: 1) The new credit card benefitted 2Q EPS by $0.16 and is seeing strong trends in account activation, card usage and new sign-ups. 2) COST announced a North American membership fee increase of ~10% to go into effect 6/1. The additional revenue affords COST the ability to further invest in pricing for members, an important lever for growth. 3) Online sales reaccelerated to +12% in 2Q, from +8% in 1Q, driven by COST’s investments in site functionality, merch availability and delivery/returns. 4) The dynamics underlying our expectation for accelerating SSS growth in 2H17 remain in place. 5) COST’s capital structure is solid, supporting our belief that another special dividend could be paid this year. We reiterate our Buy rating on COST."
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