Despite Costco (COST.US) reporting better-than-expected fourth quarter results late last month, Wall Street analysts remain divided on the stock. Bullish analysts believe the shares have further upside potential, while cautious analysts continue to highlight the company's elevated valuation levels.
Evercore ISI analyst Greg Melich maintains an "Outperform" rating with a $1,025 price target, representing a 46x multiple on fiscal 2027 expected earnings per share of $23.25 (approximately 2.2 times the S&P 500 valuation). The analyst stated: "We believe Costco's extended operating hours for Executive Members should continue to drive approximately 100 basis points of traffic growth. Additionally, the company's half-price sales of popular GLP-1 weight loss drugs Ozempic and Wegovy (member price $499 with Executive Members receiving an additional 2% discount) should help drive traffic and membership growth."
"With nationwide product price increases due to tariffs, we believe Costco's extreme value proposition will help maintain or further expand market share through 2026, even if membership renewal rates decline slightly."
Oppenheimer analyst Rupesh Parikh also maintains an "Outperform" rating. The analyst noted: "Costco continues to demonstrate broad-based growth momentum across all major categories. We remain optimistic about Costco's ability to continue gaining market share and outperform peers in the current environment."
"With non-food categories facing challenging year-over-year comparisons ahead, we recommend investors continue to capitalize on potential volatility trading opportunities. This sales report further strengthens our confidence in the company's ability to navigate difficult comparison periods."
UBS analyst Michael Lasser maintains a "Buy" rating. The analyst commented: "Notably, we believe Costco's market share accelerated in September while overall retail may have decelerated during the same period. This will become increasingly evident as the third quarter earnings season progresses. This factor, among other positives, should continue to support Costco's high valuation premium."
In contrast, analyst Louis Liu takes a more cautious stance, rating the stock as "Hold." The analyst stated: "As Warren Buffett said, 'It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.' However, applying this to Costco, I still believe this excellent company is currently overvalued. Ultimately, valuation discipline always emerges, and market euphoria cannot persist indefinitely."
He added: "Based on this, existing Costco shareholders might consider selling covered call options to hedge potential downside risk while maintaining exposure to long-term compounding growth."
Comments