Costco's Commitment To Low Prices Keeps It Relevant With Bargain-Hunting Consumers

Argus maintained its Buy rating and $175 target on Costco Wholesale Corporation COST shares following fourth quarter results.

While EPS topped Street estimates, Argus pointed out that it came below its estimate of $1.79. The brokerage cited Costco's business renewal rate in North America that demonstrated 94.4 percent, which is regarded as an "extraordinary performance." Additionally, customer visits frequency improved 2.5 percent amidst a drop in aggregate mall traffic that is expected to reach about 10 percent fall at an annualized rate.

In a note, analyst Chris Graja said, "We believe that the company's constant effort to deliver low prices keeps it relevant at a time when shoppers are looking for online bargains. The fact that more than 50% of sales come from food and sundries also makes Costco less vulnerable to internet competition. Sales of fuel are also insulated from internet competition, and Costco's low gasoline prices help to drive store traffic and reinforce the value of membership."

The analyst sees Costco delivering continued growth in both the top line and bottom line driven by innovation to retain its competitive edge supported by lower prices in selling products.

The brokerage pointed out that the company stands to gain from reduced costs with the shift to scanning options. Graja expects the company to add more stores both domestically and internationally apart from improving existing stores productivity.