Why Wells Fargo Sees Costco Nearing All-Time Highs Again

Costco Wholesale Corp. (NASDAQ: COST | COST Price Prediction) has been a winner throughout the COVID-19 pandemic, although its stock price does not currently reflect this. One analyst thinks that will change soon, and that shares could begin approaching their all-time highs yet again.

Wells Fargo recently upgraded Costco to Overweight from Equal Weight and raised its price target to $370 from $340. The new price target implies upside of 14% from the most recent closing price of $323.83.

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Essentially, the firm believes that the “market’s contempt for COVID beneficiaries has created a compelling buying opportunity.” Wells Fargo goes on to list a few reasons why:

1) The stock’s return to pre-pandemic levels seems to imply that COST keeps none of the upside, which seems wrong to us. At least some share gains should be sticky given member growth, and emerging trends (working from home and de-urbanization) represent incremental positives. 2) The membership fee looks poised to increase in the next 18 months and represents a potential catalyst for sales and earnings. 3) The company’s fundamental outlook overall remains bright, especially with the digital narrative improving. 4) Valuation is near multi-year lows relative to the market.

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Wells Fargo noted that the multiyear outlook for the stock remains attractive, as the company is a unique asset for U.S. consumers. Costco’s membership model has a large competitive moat in pricing, merchandising, experience and overall customer loyalty compared to its peers. The growth runway of its successful international business remains robust, and it also finally seems to be taking digital more seriously. The company’s pre-pandemic three-year average comparable gain of 6% had materially outpaced every other staples retail peer during this period.

Lastly, the brokerage firm said that it is always hard to make a positive valuation call with Costco, but its price-to-earnings ratio relative to the S&P 500 is near the bottom of where it has traded in the past 10 years.

Costco stock traded up over 1% on Thursday, at $329.00 in a 52-week range of $276.34 to $393.15. The consensus price target is $377.53.

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