Costco Wholesale Corporation COST shares are down 9 percent year-to-date. Goldman Sachs’ Matthew J. Fassler upgraded the rating for the company to Buy, while raising the price target from $169 to $175. The analyst commented that the company has high-visibility catalysts for 2017, and its earnings could inflect sometime in the year.
Analyst Matthew Fassler noted that the new price target reflects 18 percent upside. He added that the stock had declined to its lowest valuation metrics in some time, offering an opportunity “to step in.”
High Visibility Catalysts
Costco’s emerging credit card offers could boost the top-line. “The credit card deal includes stronger incentives (via higher cash back) and the potential for greater reach of Visa (vs. Amex), which should aid sales,” Fassler wrote, while adding that an increase in membership fees would boost the bottom line.
Meanwhile, easing pressure from exogenous factors, such as food deflation and FX, is likely to result in further earnings growth. “We also believe that the risk from fading interest on the part of Millennials is overstated; our proprietary survey work suggests Millennials are overweight COST memberships vs. other cohorts,” the analyst stated.
Given all these, an earnings inflection can be expected in FY17. Fassler believes investors would focus on these through mid-year. He added, “We expect accelerating earnings momentum to drive some multiple expansion, and outperformance.”
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