Nomura Bullish On Costco (COST) Ahead of Earnings Tonight
- Tesla lifts Nasdaq to record-high close, S&P 500 dips
- Bitcoin (BTC) Recovers to $34,000 as Analysts Insists Crypto Winter Won't Repeat Again
- Dollar edges higher as Fed debate over inflation continues
- Cathie Wood's ARK Buys ~$77M in Bitcoin-Related Securities Yesterday on Dip
- Microsoft (MSFT) Price Target Raised to 'Street High' $325 at Wedbush as Cloud Story Is Not Slowing Down
Get inside Wall Street with StreetInsider Premium. Claim your 1-week free trial here.
Nomura analyst, Robert Drbul, is bullish on Costco Wholesale (NASDAQ: COST) ahead of 3Q16 earnings with a 3Q EPS estimate of $1.25, $0.03 above consensus. He is expecting sales growth of 3.9% to $26.5bn, including a +1.0% total comp sales increase.
The company continues to be negatively affected by deflationary trends across the store, including in meat, electronics, and gas; however, we note 1) Costco’s higher-ASP and margin opportunity in organics (~$4bn business growing >20%; ~15% gross margin vs. 11% avg. for the total company) and 2) the sequential reduction in the negative hit to WMT U.S. comps from food deflation in 1Q16 (-60bps) from 4Q15 (-100bp).
The analyst expects strong membership fee income growth to continue, despite the overhang generated by the upcoming credit card transition to Citi/Visa from American Express, with new member sign-ups growing in the +MSD range and renewal rates at a record global high of 88% (U.S./Canada steady at 91%). He is forecasting an MFI increase of 5.0% to $613mn in 3Q16, an uptick from the 3.6% gain in 2Q (+HSD in CC, ~in line with recent quarters).
The credit card transition is important for two reasons: 1) Costco will benefit from lower interchange fees and 2) the improved rewards program has a strong potential to drive this card to top of wallet for many consumers.
The firm reiterated a Buy rating and price target of $185.
Shares of Costco Wholesale closed at $142.57 yesterday.
Serious News for Serious Traders! Try StreetInsider.com Premium Free!
You May Also Be Interested In
- FedEx (FDX) Price Target Raised at Barclays on Strong Results Expectations
- Nippon Yusen Kabushiki Kaisha (9101:JP) (NPNYY) PT Raised to JPY6,300 at JPMorgan
- Corteva (CTVA) Chief Executive Officer James C. Collins, Jr. to Retire at Year End
Create E-mail Alert Related CategoriesAnalyst Comments, Analyst EPS View
Related EntitiesCiti, Nomura, Earnings, Robert Drbul
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!