Why JP Morgan Called Costco 'A 2016 Story Stock'

• In a report published Friday, analysts at JPMorgan reiterated an Overweight rating on shares of Costco Wholesale Corporation COST.
• They argued that this is a “2016 story stock.”
• Consequently, they boosted their price target on the stock from $162 to $180. Shares were trading below $160 on Friday afternoon.

Costco’s stock is always expensive, and, in general, buying it could be understood as “an endorsement of ‘more of the same’ (e.g., global growth, strong business model, consistent traffic, +MSD core comps, 90% renewal rates),” analysts at JPMorgan explained. However, they added, looking into the current fiscal year (2016), Costco has several specific catalysts coming up – probably for the first time since 2011.

Thus, even though some risk to next quarter’s earnings lingers (since the experts think gas helped operating margins by ~30 basis points year-over-year last year), the firm still believes the shares are “likely to see a floor and will be bought on dips consistently.”

The Catalysts

The report then went into the three main catalysts the firm sees for this year:

• 1) Revenue and margin increases from the transition from American Express Company AXP to Visa Inc V.
• 2) “A potential earnings growth inflection into FY17 (which starts in Sept) based on up to a ~5% EPS growth tailwind from a possible membership fee increase”
• 3) “Potential normalization of FX (which pressured comps 400 bps in 1Q and EPS growth 5% in FY15 and 9% in the quarter just reported).”

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.