Why One Analyst Thinks Costco Might Be Next on Amazon’s Hit List

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Costco Wholesale Corp. (NASDAQ: COST) saw its shares take a step back on Monday after some analysts soured on the stock. Perhaps the overriding reason behind this downgrade was e-commerce giant, Amazon.com Inc. (NASDAQ: AMZN), despite a strong same-store sales report for June.

For some quick background: in June Costco reported net sales of $12.17 billion, an increase of 7% year over year. Comparable sales growth for this period, excluding the impacts from changes in gasoline prices and foreign exchange, were as follows:

  • United States, 6.3%
  • Canada, 6.8%
  • Other International, 7.1%

BMO Capital Markets downgraded Costco to Market Perform from Outperform and lowered its price target to $160 from $185.

The firm noted that shares did not react as expected after the June same-store sales were reported. In a sense, BMO believes that this underwhelming reaction was more a sign of investor sentiment that Amazon could be taking over and might potentially overshadow Costco’s fundamentals.

However, this is not to take away from Costco. The wholesale megastore has solid fundamentals, and it trades at a significant discount to Amazon.

On the other hand, the long-term threat of Amazon moving in might have some investors less than bullish on the future of Costco.

Considering Amazon’s potential for disruption, this is a very real fear for Costco. To kick off this week, Amazon announced that it will be taking aim at Best Buy’s Geek Squad. Not to mention, Amazon completely laid waste to grocery stores a few weeks ago when it announced that it would be acquiring Whole Foods. Even just this past week, auto parts retailers took a hit, which could be attributed to Amazon moving in the space.

Shares of Costco were last seen trading down 1.4% at $151.95, with a consensus analyst price target of $182.85 and a 52-week range of $142.11 to $183.18.

Amazon traded up 1.8% at $995.99, with a 52-week range of $710.10 to $1,017.00 and a consensus price target of $1,120.44.