Costco Analyst Roundup

Costco Wholesale Corporation COST reported a better-than-expected profit for the first quarter.

The stock had a mixed reaction Wednesday and recently traded at $140.03, down 2 percent.

Below are highlights from analysts following the earnings release.

Deutsche Bank - Buy, $147 price target

“COST produced another solid quarter with 1Q EPS growth YOY of 16.8 percent. The $0.03 beat ($1.12A vs. $1.09E) was good enough, in our view, as valuation and falling gas prices (therefore rising margins) led expectations higher heading into the print. We'll find out details on how much of the beat was driven by gas on the call, but note that below the line items negatively impacted our model by $0.03, making the core P&L stand out that much more. The combination of strong sales (most recently an ~8 percent core comp in November), MSD sq. ft. growth (200+ door pipeline ahead including operations in nine countries), and margin expansion (up 23 bps YOY ex. MFI) make COST unique and secures it a premium multiple, in our opinion.”

Credit Suisse - Outperform, $135

"COST delivered an impressive 4Q result, driven by strong top-line growth both domestically and overseas, gross margin improvement, and expense leverage. It remains one of the few conventional retailers that continues to gain share and grow traffic, as its business model is one of the least threatened by e-commerce. Membership income grew 7.3 percent year-over-year to $768 mn, helped by strong renewal rates (91 percent in US and Canada and 87 percent worldwide) and new member sign ups. The retailer announced plans to open 31 stores in FY15 (19 in the US and the remainder overseas)."

Guggenheim - Neutral

Analyst John Heinbockel noted that the EPS beat was fueled by “robust gas margins, which tend to be fleeting and shouldn’t carry the same multiple as ex-fuel EBIT growth.”  Heinbockel felt margins would return to normal as the decline in oil prices slows.  Heinbockel saw EBIT growth moderating to 14 percent in 2Q, 9 percent in 3Q vs 17 percent in 1Q due to foreign exchange.