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Costco Price Targets Get Cut After Earnings Miss

Analysts cut their price targets on Costco but say the membership-based warehouse retailer continues to be a core holding.
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Wall Street analysts were cutting their price targets for Costco  (COST)  after the membership-based warehouse retailer, hurt by the continuing effects of the COVID pandemic, missed second-quarter-earnings expectations.

Shares of the Issaquah, Wash., company at last check were down 1.2% to $315.10.

For the quarter ended Feb. 14 Costco reported second-quarter net income of $951 million, or $2.14 a share, up from $931 million, or $2.10, in the year-earlier quarter. Analysts forecast a profit of $2.45 a share for the latest quarter.

Sales totaled $43.89 billion, up 15% from $38.26 billion a year earlier. The latest figure beat the FactSet analyst consensus of $43.75 billion.

Among the analysts cutting their price targets was Stifel's Mark Astrachan, who pared his target to $370 from $395 while affirming a buy rating.

The analyst said Costco remains "a best-in-class retailer" and he expects pandemic-related share gains to continue.

JPMorgan analyst Christopher Horvers cut his target to $369 from $411, saying in a research note that "the stock is caught up in the malaise of the broader staples index where rate, [foreign exchange], reflation, and normalizing food at home consumption fears exist."

"We believe Costco continues to be a core holding, given that its unrivaled value proposition (11% gross margins) to its fiercely loyal customer base (about 90% renewal rate) and global growth opportunity (2% to 3% annually and likely double the current store base from here) are a rare combination in retail and consumer staples," Horvers said.

Jefferies analyst Stephanie Wissink had a similar view as she lowered her price target on Costco to $405 from $435 while affirming a buy rating. She adjusted her model for wage increases, residual COVID expenses, and quarterly comparable  cadence. 

The analyst said she continued to view Costco as "a core holding."

Costco Chief Executive Craig Jelinek noted last week that the company would start raising its minimum wage to $16 an hour this week, putting it above many competitors. 

Oppenheimer analyst Rupesh Parikh, who keeps an outperform rating on the stock with a $350 price target, said he looked favorably on Costco's long-term prospects.

He cited what he called the company's unique and improving consumer value proposition and its open-ended worldwide growth prospects.

"However," he said, "given still difficult upcoming compares and now cost pressures, the setup has gotten even more challenging. As a result, we view Costco shares as appropriate for longer-term players."  

Parikh added that fiscal 2023 "likely represents a return to normalized profit growth."

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