While the company's earnings are significant, many investors are watching the pending conclusion of the company's partnership with American Express (AXP) - Get Report . Last year Costco -- which is a key holding of Jim Cramer's Action Alerts PLUS charitable trust -- announced it had entered into a long-term credit card partnership with fellow AAP holding Visa (V) - Get Report , becoming Costco's exclusive credit card partner. The deal is scheduled to commence June 20.
"The credit card switch is going to be humongous, and that's why people are buying Costco," Real Money's Jim Cramer said on CNBC Thursday. "This is the quarter we were saying goodbye to American Express and going to Visa."
AmEx's stock bottomed following the announcement of the switch and began its rally, moving from $52.66 on Feb. 12 up to the $65+ level, where it is still trading. Costco's stock hasn't been as steady since the end of its 16-year partnership with Visa, but the long-term growth drivers are present, according to AAP.
"We are bullish long term (hence our $175 price target), but expect shares to ramp after the company reports July sales, as we believe customers are awaiting the late-June transition from legacy AmEx to the Citi/Visa co-brand card (the latter of which offers far larger rewards) before spending on big-ticket items," Cramer and AAP co-manager Jack Mohr wrote in a note today.
Costco reported third-quarter earnings that were 2 cents ahead of Wall Street's expectations for the period as revenue climbed 2.6% year over year, but missed analyst forecasts. Excluding certain factors, Costco reported that same-store sales increased 3% in the quarter, while fee income for the membership-only retailer increased nearly 6% to $618 million.
The mixed results from the quarter could be a catalyst for the struggling retailer as the company's stock price has fallen 7% year to date.
"Impressively, gross margins expanded 34 basis points (up 0.34%), well above consensus for a 20-basis-point expansion, driving better-than-expected 5.6% year-over-year growth in merchandise gross profit," Cramer and Mohr wrote. "Costco deftly managed selling general and administrative costs in the quarter, which provided an extra boost to operating margins."