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Costco ‘s runway for growth stretches decades into the future and into new corners of the world, a Wall Street firm argued Tuesday. The news Bernstein initiated Costco on Tuesday with a buy-equivalent outperform rating and a price target of $1,016 a share, implying about 15% upside from Monday’s closing price of $886.77. The analysts are particularly bullish on Costco’s ability to add new stores around the globe. “Despite its expensive valuation, we believe its international growth potential is underappreciated, which can support consistent earnings growth for decades to come,” analysts wrote in a note to clients. Specifically, Bernstein estimates Costco will routinely deliver low-double-digit earnings per share growth over that long-term horizon. Costco has more than 50 years of international expansion opportunities, assuming it keeps adding stores at roughly 25 to 30 each year, Bernstein argued. It is currently in 14 markets including the U.S., with the potential to add new countries such as Germany, analysts said. They also pushed back on the notion that Costco is running out of places to add new stores in the U.S. Bernstein said that while Costco has been slow to grow its e-commerce channel, which only represents around 7% of sales, the company has been less disrupted than peers thanks to its business model and loyal membership customer base. Separately on Tuesday, Costco and Peloton announced a partnership to sell the latter’s stationary bikes in its stores and on its website during the upcoming holiday season. COST YTD mountain COST year-to-date performance. Big picture Costco has been a retail winner over the past couple years as Americans navigated an inflationary period that led them to be cost-conscious and more selective on their spending across categories. Even as inflation has moderated more recently, the warehouse retailer’s value-focused ethos has continued to appeal to shoppers. The stock has appealed to investors, too. It’s nearly doubled since the start of 2023 while the S & P 500 is up a little over 50% in the same stretch. However, its robust advance has raised questions about whether its valuation would limit gains in the future. Those concerns were at the heart of a downgrade last month from analysts at Redburn Atlantic. Bottom line Costco’s overseas opportunity is very compelling and something Jim Cramer has been quick to point out when photos emerge of large crowds gathering outside a Costco store opening in a country. For example, when it happened in southern China earlier this year, Jim said Costco is not done “saturating the world.” Similarly, a Costco in Okinawa, Japan, opened to fanfare in late August. In an interview with the Club before his retirement, now-former CFO Richard Galanti also was upbeat on Costco’s international potential . Jim has consistently said that he’s not concerned about the premium on Costco stock because its predictable earnings expansion is something to pay up for. Indeed, adding more stores in existing overseas markets and entering new countries all together will help deliver that profit growth. The stock has stalled recently, down about 2% over the past two months after a big run driven by a membership fee hike and a special dividend payout. For that reason, Jim said during last week’s October Monthly Meeting that Costco shares were trading at an attractive level to start a position. The stock is essentially unchanged since then. (Jim Cramer’s Charitable Trust is long COST. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
A view of a Costco store in Meiwa, Gunma Prefecture, Japan, on May 28, 2024.
Tom Bateman | Reuters
Costco‘s runway for growth stretches decades into the future and into new corners of the world, a Wall Street firm argued Tuesday.