Barclays Raises Costco Price Target To $160

• Shares of Costco Wholesale Corporation COST have appreciated 12.68 percent year to date, reaching a high of $167.87 on December 8.
• Barclays’ Meredith Adler has maintained an Equal Weight rating on the company, while raising the price target from $150 to $160.
• While Costco’s 1Q16 EPS had initially appeared disappointing, coming below expectations, despite in-line sales, accounting for various expenses and other issues makes the back results appear robust.

Analyst Meredith Adler mentioned that the company bore an FX hit of $0.10 to its EPS, along with incremental IT modernization costs of $0.03. Other one-time items included a $0.04 accrual due to the resolution of two regulatory and legal issues, “$0.02 from a lack of credit card signup fees as COST transitions to a new plan, and $0.03 from a one-time benefit to the gross margin last year.”

In addition, Costco incurred stock compensation expense of $0.05, which is recurring but would impact every 1Q, with little impact on the remaining quarters of the year.

According to the Barclays report, “Sales at the beginning of November were soft, but they improved during Thanksgiving week, despite the fact that COST was not heavily promoting its Black Friday deals.”

The EPS estimate for 2Q16 has been lowered from $1.29 to $1.27, while the FY16 EPS estimate has been reduced from $5.63 to $5.46, to reflect “a weaker comp and gross margin, partially offset by lower SG&A growth.”