Although some Wall Street analysts weren't particularly impressed with the earnings report, Kelly Bania of BMO Capital Markets was among those who were encouraged.
BMO's Commentary
In a research report on Thursday, Bania stated that Costco's adjusted earnings per share of $1.17 was in line with her below-consensus expectations. In fact, the analyst believes the quarter was stronger than the headline numbers suggest for two main reasons:
- First, Bania stated that Costco's interchange fee savings were better than expected in the quarter. The analyst believes savings from the lower interchange fees will represent $0.43 in earnings per share and are tracking ahead of her expectations of $0.16 to $0.33 per share for the full year.
- Second, the analyst highlighted the fact that a membership fee raise is now more likely given weaker comps.
Accordingly, Bania is adjusting her full-year fiscal 2017 earnings per share estimate to $5.98 from a previous $5.90, and her 2018 estimates were also raised to $6.65 per share from a previous $6.47 per share. Over the longer term, Costco's low gross margin business strategy and its product nimbleness imply the big box store will remain "highly relevant," even in a fast-changing consumer environment.
Shares remain Outperform rated with an unchanged $180 price target.
At last check, shares of Costco were up 3.56 percent on the day, trading at $159.37.
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