Costco Shares Affirmed Top Pick, Price Target Raised at Oppenheimer on Valuation

Oppenheimer affirmed Costco shares as a top pick and raised its price target on the Issaquah, Wash., membership-based retailer to $335 a share.
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Costco  (COST) - Get Report shares were reiterated a top pick at Oppenheimer, which raised its price target on the membership-based retailer to $335 from $300.

The new target represents 10% potential upside from the stock’s Friday closing price of $304.68. The shares at last check were 2.6% higher at $312.70.

“We see the potential for a catch-up trade as investors could eventually rotate into laggards and as a very onerous second-quarter earnings-per-share comparison soon passes,” Oppenheimer analyst Rupesh Parikh said.

The stock has recovered from a slump late last year. It has recovered by more than 7% since Jan. 2.

That swoon dropped the Issaquah, Wash., retailer’s relative price-to-earnings multiple to 1.8 times from a peak level of 2.07 times in late August. That reduced valuation led Oppenheimer analysts to lift the company’s price target and reiterate its bullish stance.

A tailwind for the stock could be a special dividend of around $10 a share that could be declared in the coming quarter. 

That estimate is based on the company having about $22 a share in cash after paying down $1.7 billion in debt this year. 

Other tailwinds that Costco could see in the near term are a steady labor market, steady wage gains and improved consumer sentiment, according to a separate analysis by Zacks Research. 

It is not all smooth sailing from here for the company, however, as Parikh says the company will be up against tough second-quarter comparisons.

Costco is set to report fiscal-second-quarter earnings on March 5 after the market closes.