Costco Wholesale Corporation (NASDAQ: COST) reported fiscal second-quarter results that handily beat expectations while same-store sales were strong at 6.7 percent.
RBC Capital Markets' Scot Ciccarelli maintains an Outperform rating on Costco with a price target lifted from $235 to $250.
Bank of America's Robert Ohmes maintains at Buy, unchanged $255 price target.
Raymond James' Budd Bugatch maintains at Outperform, price target lifted from $240 to $250.
Morgan Stanley's Simeon Gutman maintains at Equal-weight, unchanged $220 price target.
Costco's stock traded higher by 5.5 percent at $228.62 per share Friday morning.
EBIT of $1.2 billion was $0.1 billion better than expected.
One of the key metrics to gauge Costco's profit outlook is membership rates and this metric remained healthy in the reported quarter, Ohmes said in a research report. Membership fees were 7.3 percent higher in the quarter and the fee increase accounted for roughly half of the growth. Membership renewal rates also showed signs of improvement in both the U.S. and international markets as did growth in member households per store.
Also important to the bull case is continued e-commerce momentum, the analyst wrote. Encouragingly, online sales grew 25.5 percent in the quarter due to better online merchandising, inclusion of higher-end products, digital marketing and better delivery options. While e-commerce sales are dilutive to margins it is also EBIT margin accretive due to lower SG&A.
Costco's "impressive" report marks the continuation of comparable sales momentum over the past year against challenging prior year comparisons, Bugatch said. The company is achieving success mostly due to the strength of its business model in which new and existing members see value in what the brand has to offer.
More important to the bullish case is the consistent mid-single digit U.S. customer traffic growth, which signals management remains focused both generating growth without impacting the customer experience. The analyst said there's a reason to believe the company can continue gaining market share and members over the coming years through new club openings in both the US and international markets.
Gutman said Costco's 20-percent beat may signal strong trends in the core business, but the magnitude of the beat is unlikely to be sustainable. For example, EPS came in better than expected by 32 cents, but around 23 cents of the beat was due to higher EBIT dollars.
Around 9 cents were due to below the line items like FX-related income and a one-time foreign tax credit. Some of the remaining beat can be attributed to higher than usual gas profit but gas prices shifted higher exiting Costco's quarter.
Around 80 percent of the earnings outperformance is due to items that are unlikely to continue over the long-term and EPS growth should moderate moving forward, the analyst wrote.
Costco has now posted 12 consecutive quarters of increasing comps aided by a strong private label offering, improvements in fresh food and new technologies to speed up the shopping experience, Feinseth said in his daily newsletter.
The company also benefits from a very loyal customer base that is willing to pay an upfront membership fee to shop at its "treasure hunt-like" stores, he said. Encouragingly, the number of people willing to pay for memberships continues to increase despite the recent price increase.
"I believe further upside exists from current levels and continue to recommend purchase," Feinseth wrote.