UPDATE: Bank of America Merrill Lynch Reiterates Buy Rating, Raises PT on Costco Wholesale Corporation
In a report published Wednesday, Bank of America Merrill Lynch reiterated its Buy rating on Costco Wholesale Corporation (NASDAQ: COST), and raised its price target from $98.00 to $110.00.
BofA Merrill Lynch noted, “Following our headquarters meeting with CFO, Richard Galanti, we are raising our PO to $110 (from $98) as we shift our valuation to be based on our F14E EPS (from F13) of $5.00 and maintain our 22x target PE multiple. Costco's long-term avg 2-year forward PE multiple is 20x, yet we believe an above average multiple can continue given: 1) strong Fall/Holiday outlook on customer traffic trends (trending +3-5% since mid-2008); 2) accelerating new store growth in both the U.S. & abroad (including Asia, Australia & Europe); 3) impressive consistency in same-store sales trends (U.S. core comps x-gas +10-11% on a 2-year basis over the past year); and 4) a favorable operating margin outlook supported by a mix-shift to higher margin Intl businesses, a significant benefit to membership income over the next 3 Qs following LY's fee increase for roughly 22MM members, improving U.S. EBIT margins on operating leverage & merchandise margin opportunities as well as abating margin pressure from the increase in 2% rewards membership.”
Costco Wholesale Corporation closed on Tuesday at $101.44.
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