Oppenheimer Sees Another 'Potential Positive' In Costco Story

In a report published Friday, Oppenheimer analyst Brian Nagel maintained an Outperform rating and price target of $160 on Costco Wholesale Corporation COST. The stock has recently underperformed and is now trading at a slightly discounted valuation, despite strong underlying fundamental trends.

"The potential for a hike in membership fees and waning investment spending suggest potentially better EPS growth in coming quarters," Nagel stated, while adding that the "new co-branded credit card relationship (would) serve as another forthcoming, incremental driver for the COST model."

The company has announced in early March that Citigroup, Inc. C would become the exclusive issuer of co-branded credit cards for Costco, while Visa Inc V would replace American Express Company AXP as Costco's credit card network in the U.S. and Puerto Rico, starting from April 2016.

According to the Oppenheimer report, "COST has not discussed details of its existing or new credit card arrangements. Per our estimates, the chain could save $40-200M annually in interchange fees in its transition from AXP to V."

The analyst expects the company to return most of the expense savings or incremental revenues from the new credit card relationships to consumers. "We are optimistic that a further enhanced offer from COST could help to drive even stronger membership trends at the chain," Nagel added.