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Costco has held its membership fees flat since 2017.
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Costco Wholesale’s earnings report won rave reviews from Wall Street analysts. An initial fall in its share price suggested investors were disappointed by the lack of a membership fee increase, but that could offer a future catalyst.
Costco
stock (ticker: COST) was up 1.8% in early Wednesday trading at $562.72 after earnings and sales beating consensus forecasts.
That reversed an earlier fall in after-hours and premarket trading when investors appeared to react with disappointment that the retailer hadn’t increased its membership fee.
It might just be a matter of patience, according to analysts.
“With what we continue to view as the highest barriers to entry in all of retail due to its immense buying power and extreme value offering, as well as the potential for an eventual membership fee increase…we remain aggressive buyers of Costco,” wrote Truist analyst Scot Ciccarelli.
Ciccarelli raised his target price on Costco stock to $619 from $597, and kept a Buy rating. The target is based on a multiple of 39 times the company’s expected earnings per share over the next 12 months.
Costco has held its fee flat at $60 for its entry-level membership, and $120 for a premium version since 2017. That had some analysts scheduling a raise around now, but company executives refused to commit to a timeline for a raise on Tuesday in an earnings call.
Still, investors should be able to relax and enjoy Costco’s steady performance for now, according to TD Cowen’s Oliver Chen. He raised his target price to $680 from $600 and kept an Outperform rating on the stock, citing consistent traffic and share gains in nonfood categories.
Even without the catalyst of a membership-fee increase, analysts are seeing value in the stock. BMO Capital Markets analyst Kelly Bania said a new target price of $612, based on a price-to-earnings ratio of 36 times Costco’s forecast 2025 profit, didn’t include any uplift from a fee increase.
“With Costco’s continued execution in a volatile retail backdrop, we believe [its] consistency stands out as another factor that supports its premium valuation,” Bania wrote. Her former price target on Costco stock was $600, and she continues to have an Outperform rating.
Costco doesn’t look to be suffering from some of the pressures facing other retailers such as higher inventory shrink — the industry term which encompasses merchandise theft and damage.
Target
(TGT) said Tuesday it would close nine stores across four major metropolitan areas in response to a surge in theft and crime.
The company is also relatively sheltered from falling demand for more- expensive items due to its low prices and high-quality products, according to William Blair analyst Phillip Blee. He kept an Outperform rating on Costco stock, and noted it now trades at 30 times forecast 2025 earnings, below its five-year average of 33 times.
Write to Adam Clark at adam.clark@barrons.com