UPDATE: Costco Wholesale (COST) PT Lowered to $340 at Wells Fargo but Fundys Look Encouraging
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Wells Fargo analyst Edward Kelly lowered the price target on Costco Wholesale (NASDAQ: COST) to $340.00 (from $360.00) after EPS of $2.14 missed expectations of $2.45. Global comp growth (ex. fuel and FX) of 12.9% was ahead of the consensus 11.4% but gross margin compressed 2bps as improvement in core merchandise gross margin (including better shrink and higher labor productivity) was offset largely by weakness in the fuel business.
The analyst reiterated an Equal Weight rating, stating "COST's Q2 result is unlikely to provide much needed stock support given the headline miss, but the fundamental performance this quarter was better than it appeared. EPS of $2.14 missed consensus and our estimate of $2.45, but weak fuel margins accounted for an estimated two-thirds of the miss with the remainder due to higher costs. Excluding this, the quarter was characterized by strong comps, continued market share gains, and another robust increase in core margins. Even the early COVID lap seemed promising with a modestly positive comp in the last week of February and there is no doubt the company is constructive on keeping some of its pandemic gains. Overall, we walked away generally positive".
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