Target Price Raised on Costco Wholesale (COST)
We are maintaining our BUY rating on Costco Wholesale Corp. (COST) and raising our target price to $330 from $315.
We believe that Costco's financial strength and ability to deliver exceptional value to consumers are key differentiators for the stock in the current market environment. Our analysis of core operations suggests that execution of the business plan remains excellent, with strong traffic and membership renewals.
While the shares trade at a premium multiple it is important to consider the following: recurring revenue from membership fees, 90% renewal rates in North America, some of the strongest traffic in retail, a growing $40 billion private-brand business, more cash than debt, full ownership of 620 sites and warehouses, and financial strength enabling double-digit dividend growth and buybacks.
There were 98.5 million total members at the end of 4Q19, up 1.3 million members over the prior quarter. Overall renewal rates rose 20 basis points to a record high of 90.9% in the U.S. and Canada. We believe this underscores the company's relevance to its paying members.
Shopping frequency or traffic increased by 3.7% overall in 4Q and 3.6% in the U.S. We regard this as a very strong showing for Costco given that aggregate retail traffic in the U.S. has declined at a roughly 4% rate over the last year.
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