Costco Is 'Rare Opportunity,' Oppenheimer Upgrades With 15% Upside Outlook

In a report published Friday, Oppenheimer analyst Brian Nagel upgraded the rating on

from Perform to Outperform, with a price target of $160. The analyst believes that the stock has upside potential of almost 15 percent from its current levels. The stock has underperformed recently, due to modest EPS and fund flow issues, presenting an attractive opportunity for intermediate to longer-term investors. "A potential membership fee lift and an end to incremental IT spending suggest the potential for better EPS over the next couple of years," Nagel said. Given that the company enjoys considerable pricing power, the analyst expects an incremental hike in membership fees to drive both Costco's EPS and share price as early as Fall 2016. In addition, with the IT-related investments undertaken by the company over the last several quarters peaking in August 2015, the analyst expects the pace of investments to gradually drop to zero through FY2017. While the EPS estimate for FY16 has been maintained at $5.70, the estimate for FY15 has been raised from $5.15 to $5.20 and the estimate for FY17 has been lowered from $6.40 to $6.35.