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Costco stock may surprise if the company hikes membership fees in fall 2022

Brian Sozzi
·Editor-at-Large
·3 min read
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Chatter is picking up on Wall Street of a looming membership fee increase out of retail giant Costco (COST), but that doesn't mean the stock will be a home-run for investors after any hike. 

In fact, historical data compiled by Guggenheim analyst John Heinbockel says the opposite could happen to Costco's stock. One month after announcing its last three membership hikes in April 2006, October 2011 and March 2017, Costco shares rose 0.2% (2006), gained 2% (2011), and fell 5.8% (2017), respectively. 

The selling in Costco's stock became more pronounced thereafter, Heinbockel's data shows.

Costco's stock three months after announcing a membership fee increase:

  • April 2006: -1.3%

  • October 2011: -1.8%

  • March 2017: +1.7%

Costco's stock six months after announcing a membership fee increase:

  • April 2006: -12.6%

  • October 2011: +7.1%

  • March 2017: -11.1%

The real good time to buy Costco shares is one year ahead of an expected profit-boosting membership fee increase, which usually happens every five years. Costco's stock has gained an average of 22.4% one year before a membership fee increase, according to Yahoo Finance's analysis of Heinbockel's data. 

The Guggenheim analyst thinks fall 2022 is when Costco will lift its fees again, essentially just about putting the stock currently in the buy zone judging by historical precedence. 

"Under this timetable, the shares would see a clear benefit between Fall 2021 and Spring 2022, possibly commencing after 4Q earnings are reported in early October," Heinbockel says.

In a photo made on Monday, Feb. 28, 2011, Consumers apply for Costco membership at the Costco Wholesale store in Glendale, Calif.  Costco's fiscal third-quarter net income climbed 19 percent on lower asset charges and the wholesale club pulled in more money from membership fees. (AP Photo/Damian Dovarganes)
In a photo made on Monday, Feb. 28, 2011, Consumers apply for Costco membership at the Costco Wholesale store in Glendale, Calif. Costco's fiscal third-quarter net income climbed 19 percent on lower asset charges and the wholesale club pulled in more money from membership fees. (AP Photo/Damian Dovarganes)

Costco's last membership fee increase kicked in on June 1, 2017. It took its Gold Star membership fee up $5 to $60. Executive membership fees increased by $10 to $120. At the time, the increases impacted about 35 million members. Heinbockel sees similar increases to each tier of Costco membership in fall 2022.

Since the June 2017 increase, Costco has added about $50 billion in sales and nearly $4 a share in earnings as existing members stayed with the retailer and new ones entered at higher rates. Costco's stock has gained about 100% dating back to when the last fees increase kicked in, per Yahoo Finance Plus data. The S&P 500 is up 65% during that stretch.

Any membership fee increase out of Costco shouldn't come as a shock as it works to offset COVID-19 expenses.

Earlier in March, Costco missed quarterly earnings estimates due to 41 cents in added COVID-19 costs. Costco spent $1.06 billion pre-tax on COVID-related expenses over the trailing 12 months, according to data from Jefferies. That includes $825 million related to a $2 an hour pay bump and $200 million on PPE and other costs.

In late February, Costco raised the starting wage to $16 an hour for U.S. workers. The decision was first revealed by Costco CEO Craig Jelinek in testimony to the U.S. Senate Budget Committee. Costco raised its starting pay to $15 an hour in 2019. More than half of Costco's hourly workers in the U.S. are paid above $25, Jelinek said.

Costco employs roughly 180,000 workers in the country.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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