UBS On Costco: 'Filling Up The Margin,' Hikes Price Target Following Q1 Print

Michael Lasser of UBS reiterated a Neutral rating on Costco Wholesale Corporation COST with a price target raised to $145 from a previous $140 following the company's first-quarter results.

Lasser is “encouraged” by several trends including members per average warehouse growing 2.5 percent, up 70 basis points year-over-year, while renewal rates remained strong at 90.6 percent in the U.S. and Canada and 87.3 percent worldwide. The analyst adds that the “most encouraging” highlight was that executive memberships, which represent approximately two-thirds of all sales, continued to climb as a percentage of total primary memberships to 39.0 percent.

According to Lasser, Costco's gross margin expansion of 15 basis points year-over-year was more than accounted for with a 22 basis point bump from Ancillary sales, which include fuel. The analyst adds that the company typically benefits from lower fuel prices as retail fuel prices take longer to adjust than wholesale prices.

Lasser also notes that Costco's e-commerce “continues to quietly make a ripple,” and now represents approximately 3 percent of sales and that the company's partnerships with Google Inc's GOOGL Shopping Express and Instacart are “savvy moves” to improve delivery times.