What Does Wall Street Think Of Costco Now?

Costco Wholesale CorporationCOSTfiscal fourth-quarter earnings report had many investors concerned with a dip in margins.

Here is a roundup of what some of Wall Street's most notable analysts are saying after the print.

Citi: 2 Reasons Shares Are Lower

Citi's Kate McShane maintains a Buy rating on Costco's stock with a price target boosted from $187 to $190 as the company reported "impressive" fourth-quarter results.

Nevertheless, Costco's stock is trading lower for two reasons:

1. Membership renewal rates continue to show some signs of weakness, adding to ongoing concerns of the "Amazon.com, Inc. AMZN impact."
2. Costco's management highlighted its price investments as a contributing factor to poor margins which also adds to the "Amazon impact" concerns.

On the other hand, Costco could also be motivated by offering "the best value proposition to consumers," McShane added.

"Costco remains well-positioned to withstand competition given its low prices, experience in the grocery industry, the 'treasure-hunt' aspect of shopping, COST's ability to act as a one-stop shop for households, the draw of its ancillary businesses that cannot be replicated online, and its geographic diversification," the analyst emphasized.

Bank Of America: Solid Execution And Outlook

Bank of America's Robert Ohmes maintains a Buy rating on Costco's stock with an unchanged $192 price target.

Costco's quarter benefited from better than expected revenue in addition to membership fee income and a lower tax rate, Ohmes commented in a research report. But more important to the core thesis, the company's e-commerce comp sales jumped to 21 percent in the quarter while total e-commerce sales for the year grew 15 percent from a year ago to $4.6 billion.

Customers appear to be responding well to management's investments in the e-commerce platform, including better search, improved checkout, faster and more efficient fulfillment and new brands. In addition, two new delivery systems could accelerate growth even further next year including Costco Grocery and a same-day delivery system as part of a partnership with Instacart.

Finally, Costco's outlook remains encouraging, especially when considering headwinds from the 2016 credit card switch likely peaked and an expected entry into China could happen in fiscal 2018. Related Link: What Everyone Needs To Remember About Costco

BMO: A 'Pause' To The Story

BMO Capital Markets' Kelly Bania maintains a Market Perform rating on Costco's stock with an unchanged $160 price target.

Costco's business has benefited from ongoing strength in comps but the core gross margin came in flat in the fiscal fourth quarter, Bania commented in a research report. This compares unfavorably to an expansion of 7 to 17 basis points over the past nine quarters. On top of that, the company is active in spending money on various online initiatives, which "suggest a more cautious outlook" for margins.

In fact, Costco's gross margin outlook may result in a "pause" to Costco's growth profile moving forward.

Stifel: Forget About EPS Upside

Stifel's Mark Astrachan maintains a Buy rating on Costco's stock with an unchanged $173 price target.

Costco's fiscal fourth-quarter earnings report was "solid" although it was also "underwhelming" as some investors may have been expecting a strong earnings beat, Astrachan commented in a research report. Adding to investor disappointment is a flat core margin rate which marks the first-time margins haven't improved sequentially since the second quarter of fiscal 2015.

The trend of disappointing margin performance will likely continue as Costco continues to build out its e-commerce platform, the analyst continued. This may, however, be necessary as it is seen as a tool to reinforce its value proposition to customers. Also, renewal rates moved lower across the U.S., Canada and worldwide.

Nevertheless, a Buy rating remains justified as expectations for a mid-single-digit comp store sales growth could continue for at least the next three quarters, the analyst added. However, longer-term concerns including renewal rates and competitive threats from Amazon "remain a watch point" for the time being.

At time of publication, shares of Costco were down 5.67 percent at $157.59.

Related Link: Amazon's Making It Tough To Be A Costco Shareholder