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Costco will stay hot even as economy slows, Deutsche Bank analyst says

·Anchor, Editor-at-Large
·2 min read
In this article:
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Costco (COST) shares are a beacon of hope for one's portfolio as the economy is poised to slow further into 2023, Deutsche Bank contends.

Deutsche Bank analyst Krisztina Katai upgraded her rating on Costco's stock to buy from hold in a new note on Thursday. Katai sees fair value for Costco shares at $579, or up about 15% from current price levels.

"Costco is one of the most consistent operators in our group, and its steady traffic gains and high membership renewal rates serve as key differentiators in an increasingly uncertain backdrop. Recent monthly sales results point to consumer 'trade in' to the club channel, and the company's fast inventory turns should help insulate it somewhat from inventory challenges currently faced by other retailers," Katai wrote.

Costco's shares were up over 3.7% on Thursday at 2:30 p.m. ET, trading at roughly $510.

Customers wait in line to order below signage for the Costco Kirkland Signature $1.50 hot dog and soda combo, which has maintained the same price since 1985 despite consumer price increases and inflation, at the food court outside a Costco Wholesale Corp. store on June 14, 2022 in Hawthorne, California. (Photo by Patrick T. FALLON / AFP) (Photo by PATRICK T. FALLON/AFP via Getty Images)
Customers wait in line to order below signage for the Costco Kirkland Signature $1.50 hot dog and soda combo, which has maintained the same price since 1985 despite consumer price increases and inflation, at the food court outside a Costco Wholesale Corp. store on June 14, 2022 in Hawthorne, California. (Photo by Patrick T. FALLON / AFP) (Photo by PATRICK T. FALLON/AFP via Getty Images)

Some of Costco's consistency was on full display in June.

The warehouse retailer reported last week that June same-store sales — excluding fuel sales — rose an impressive 13% from the same period last year. Store traffic surged 10.2% year over year, and "core" U.S. sales improved 13.2%. E-commerce sales rose 8.3%.

Overall, Costco notched sales increases in all of its merchandise departments, led by a mid-teens percentage increase in its food business.

The gains come as many retailers are showing major weakness with the economy slowing.

Costco rival Target (TGT) issued a material profit warning in early June, and is now aggressively liquidating inventory. Gap (GPS) and Bed Bath & Beyond (BBBY) just pushed out their respective CEOs after lackluster second quarters. Even high-end home furnishings retailer RH (RH) issued a financial warning in late June.

The climate looks ripe for Costco though, says Katai.

"We see meaningful share gains ahead for Costco as consumers increasingly flock to warehouse clubs to consolidate trips, purchase in bulk for better pricing, and fill up their cars with lower priced gas. Other catalysts include the potential for a membership fee increase over the next 12 months, a likely special dividend, and higher gas profitability driving ancillary gross profit margin and, in turn, EPS upside," Katai added.

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

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