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Analysts revise Costco stock price ahead of earnings

Analysts revise Costco stock price ahead of earnings
Elmaz Sabovic

With strong growth prospects, sales, and customer retention, Wall Street analysts revised their Costco (NASDAQ: COST) stock price targets ahead of the Q3 May 30 earnings call.

The recent Costco success didn’t go unnoticed by Wall Street analysts, who keep a wary eye on companies’ performance, prospects, and other factors that may influence the future stock price.

In a report released on May 22, Rupesh Parikh from Oppenheimer maintained a ‘buy’ rating on Costco stock, with a price target of $850 from the previous $805.

Two weeks ago, on May 14, Evercore ISI Group analyst Greg Melich maintained the COST stock price target with an ‘outperform’ and raised the price target from $810 to $820.

On May 9, Loop Capital Markets analyst Laura Champine reiterated a ‘buy’ rating on Costco stock and set a price target of $840. 

At the same time, Corey Tarlowe from Jefferies maintained a ‘buy rating on Costco, with a price target of $860.

These price targets reflect the bullish stance among the analysts covering Costco stock. They project an almost 10% increase in the stock’s value from its current price levels, which at the recent close stood at $809. 73.

COST stock 24-hour price chart. Source: Finbold
COST stock 24-hour price chart. Source: Finbold

Costco’s business model 

Costco operates a straightforward business model well-executed by its management. It charges membership fees, allowing members to shop at its warehouses. This model benefits members by offering high-quality goods and services at attractive prices through bulk purchasing.

A key indicator of Costco’s success is its retention rate, which consistently hovers around 90%, including 90.5% in Q2. Additionally, Costco continues to add new members, reaching 73.4 million paid members recently, up from 71 million at the end of the previous year.

Unstoppable growth bodes well for Costco

Costco is also expanding its number of warehouses, adding over 20 annually, including 23 in fiscal 2023. With 875 warehouses currently, more than two-thirds are in the U.S., but there are also international locations. This year, the company plans to open about 28 domestic and international locations.

Costco's number of warehouses by year. Source: Statista
Costco’s number of warehouses by year. Source: Statista

Despite the early pandemic slowing new openings, Costco has since accelerated its expansion plans. Operating income grew by 8.4% in the most recent quarter to $2.1 billion. 

The company has held off on raising membership fees, which helps maintain customer loyalty amid high inflation. 

When it eventually increases fees, there is likely to be little resistance from members, as the last hike was in 2017, which should further boost profitability.

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