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On Friday, TD Cowen maintained a bullish stance on Costco Wholesale (NASDAQ:COST), lifting the retailer’s price target to $1,100 from $1,090, while reiterating a "Buy" rating on the stock. The adjustment follows Costco’s second-quarter earnings report, where the company posted earnings per share (EPS) of $4.02, narrowly missing the consensus estimate of $4.09. Despite the slight underperformance, the company demonstrated robust total comparable sales growth, excluding gas, of 9.1%. According to InvestingPro data, Costco has maintained strong financial health with an overall score of "GOOD" and impressive revenue of $258.8 billion over the last twelve months.
Costco’s operational margin for the quarter was reported at 3.6%, a slight increase of 10 basis points year-over-year, but just below the expected 3.7%. The growth in comparable sales was driven by a 3.2% increase in average ticket size, excluding gas, and a 5.7% rise in customer traffic. Following the earnings announcement, Costco’s shares saw a modest decrease of 1% in after-hours trading. InvestingPro analysis reveals that while the company suffers from weak gross profit margins, it maintains strong financial fundamentals with more cash than debt on its balance sheet.
TD Cowen’s analyst praised Costco’s supply chain expertise, unmatched scale, and unwavering commitment to value and service, which they believe positions the company strongly in the face of economic and product cost volatility. The firm considers Costco as one of the top three ideas in their coverage, citing multiple avenues that could support the continuation of high-quality defensive momentum for the retailer. This aligns with InvestingPro data showing impressive returns, with a 31.4% total return over the past year and a strong track record of dividend payments maintained for 22 consecutive years.
The new price target of $1,100 is based on a forward Price to Earnings (P/E) multiple of 56 times the fiscal year two estimates, which remains unchanged from the previous valuation approach. The analyst highlighted that although Costco’s forward P/E is elevated at 51 times compared to a three-year average of 39 times, it is justified by the company’s prospects. Current InvestingPro metrics indicate the stock is trading above its Fair Value, with a P/E ratio of 60.1 and strong momentum scores. Costco’s performance and the updated price target reflect the confidence TD Cowen has in the retailer’s ability to maintain its growth trajectory, supported by revenue growth of 5.35% over the last twelve months.
In other recent news, Costco Wholesale reported strong financial results for the second quarter of fiscal year 2025, with adjusted comparable sales rising by 8.3%, surpassing expectations. The company experienced a 7% year-over-year growth in membership fee income, which is expected to contribute more significantly in the upcoming quarters. Despite a slight decrease in core-on-core gross margin, the company leveraged its selling, general, and administrative expenses effectively. Analysts from Stifel maintained a Buy rating with a $1,075 price target, while BMO Capital Markets reiterated an Outperform rating with a $1,175 target, citing Costco’s robust performance and strong membership growth.
Truist Securities raised its price target to $995 from $935 but maintained a Hold rating due to concerns over Costco’s current stock valuation. Loop Capital Markets adjusted its price target to $1,135 from $1,150, maintaining a Buy rating and highlighting the retailer’s exceptional value proposition. Raymond (NSE:RYMD) James reaffirmed an Outperform rating with a $1,070 price target, noting Costco’s solid sales performance and strong membership trends. Looking forward, Raymond James expects approximately 25 net new Costco openings in fiscal year 2025, with continued market share gains anticipated.
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