BofA Sticks With Overweight On Costco, Sees Easing Headwinds Ahead

On Wednesday, Costco Wholesale Corp (NASDAQ:COST) reported net sales of $26.44 billion for the retail month of June, which includes the five-week period ending July 6.

Net sales for the month were up 8% on a year-over-year basis.

The membership-based retailer said total company comparable sales were up 5.8%.

Bank of America (BofA) Securities writes overall, COST's June U.S. core comp came in at +5.5%, slightly below the Street's +6.0% per consensus Metrix, but ahead of buy-side expectations of ~5.0%.

U.S. traffic was +2.8% and total enterprise-wide traffic was +3.4%, while average ticket increased +2.8% YOY (ex-gas deflation and FX).

Also Read: Is Costco’s Winning Streak Built To Last During Economic Turmoil?

Looking ahead, the tough comparisons due to high gold prices should ease by August. BofA also expects the negative impact from store overlap (cannibalization) to gradually lessen to a more typical range of 20-30 basis points by year-end.

Additionally, the drop in store traffic caused by lower gas prices year-over-year is likely to have peaked, as the steep comparisons should ease by August or September. Current gas prices also suggest mild inflation by October.

As a result, the negative sentiment from momentum investors who viewed Costco as a “source of funds” to sell should start to fade, although BofA said they will still be watching how growth stocks perform compared to value stocks and the Russell 2000.

Analyst Christopher Horvers maintains an Overweight rating on Costco, viewing it as a key investment due to its strong global performance, consistent market share growth and exposure to a rebound in large-item spending, which accounts for approximately 20% of its core sales.

He also notes the early benefits of Costco’s growing advertising business. Horvers says Costco stands out even among top consumer companies.

Unlike other major retailers, Costco has been successful in every country it has entered. Its membership-based model is one of the strongest in retail, comparable to leading auto parts retailers, with Costco clearly leading the market.

BofA maintains the Overweight rating with a price forecast of $1,115. Check out other analyst stock ratings.

Price Action: COST stock is down 0.58% at $976.38 at the last check on Wednesday.

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