By Sam Boughedda
A UBS analyst reiterated a Buy rating and $595 price target on Costco (NASDAQ:) shares in a note to clients Monday, stating he believes the company will post a healthy fourth-quarter earnings per share upside.
“The co. has already reported strong top-line results in its monthly sales results to date, helping to support our 9.9% comp estimate for 4Q (ex fuel and FX),” wrote the analyst. “We think steady membership acquisition was a key contributor to this acceleration.”
UBS believes both food and fuel inflation “probably helped” to spur incremental interest in Costco membership, and they estimate the company’s membership fee income grew by 6.1% to $1,309 mm in the fourth quarter, compared to consensus estimates of $1,321 mm.
“Overall, the print should reinforce how the consistent execution of Costco’s compelling business model offers durability during a period of increased uncertainty. All the while, Costco likely benefited from the supportive environment for gas profits during the period. Kroger (NYSE:) noted during its recent release that its gas profit per gallon increased to $0.62 from $0.39 in the year ago period, showing how powerful this can be,” explained the analyst.
“Looking ahead, we think COST’s stock still has room to appreciate. It will retain its premium valuation and drive steady earnings growth, in our view,” he concluded.
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