Costco Stock Down 9.4%: Could This Mean ‘Buy’?



Key update

Costco (COST) stock has fallen 9.4% in the past month. Much of this decrease followed the company’s fiscal 2018 fourth-quarter earnings release, during which management warned of “material weakness in internal control.” Whereas we believe the market overreacted slightly (Costco did clarify that there weren’t any misstatements in the financials), we have also warned investors about Costco’s high valuation suggesting a pullback.

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Following the company’s conference call, several analysts lowered their target price for Costco stock: JPMorgan Chase decreased the target price to $252 from $255, RBC reduced it to $253 from $255, and Oppenheimer lowered it to $262 from $265. However, UBS was confident in Costco and raised its target price to $265 from $255.

Analysts recommend “buy”

Despite lowering their target prices, most analysts recommend “buy” for Costco stock. They expect Costco to continue to report healthy sales and EPS growth. Costco’s value proposition, expanded offerings, and higher warehouse count and membership renewal rate (Costco’s US and Canadian membership renewal rate was 90.4% at the end of the fourth quarter) position it to gain during the holiday season. Costco is now focusing on expanding its digital offerings, which is an encouraging move.

Of the 29 analysts covering Costco stock, 18 recommend “buy,” and 11 recommend “hold.” Their consensus target price of $240.83 for Costco stock implies a 10.1% upside based on its October 5 closing price of $218.82. In comparison, most analysts recommend “hold” for Target (TGT) and Walmart (WMT) stock.


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