Analysts stay upbeat on Costco after solid quarter, but say it's richly valued

CNBC

2 days ago

Costco's solid third-quarter results on Thursday left Wall Street analysts confident that the membership club wholesaler can retain its dominance. The firm, whose sales in its current fiscal year are estimated to reach $275 billion, surpassed analyst estimates on the top and bottom line in the quarter that ended May 11. Analysts pointed to strong foot traffic, customer loyalty and said Costco is well-positioned to handle tariff headwinds as U.S. trade policy continues to evolve. Shares have advanced 14% so far in 2025, outpacing the S & P 500, which is little changed. But after Costco stock more than doubled in the two years from the start of 2023 to the end of 2024, consensus analyst forecasts for the next 12 months imply just 3.4% upside. Bernstein analysts, for example, caution that future gains could be slim because the stock is "priced for perfection." COST YTD mountain Costco stock in 2025. Shares rose 3.1% Friday in reaction to the latest quarter's results released post-market Thursday. Here are the main takeaways from analysts on Wall Street after Costco's fiscal third-quarter print. Bernstein, outperform rating, $1,153 per share price target Analyst Zhihan Ma's forecast implies 11% upside from Friday's close of $1040.18. "Overall, we are encouraged by COST's strong traction with consumers, evidenced by its meaningfully above-peer comp sales growth. Further, we expect COST to continue to expand its store footprint in the U.S. and globally at a measured pace," Ma said. "At the current rate of expansion, we see a long growth runway for COST for decades from here." Morgan Stanley, overweight, $1,225 Analyst Simeon Gutman's price target, which he raised from $1,150, implies about 18% upside. "It is rare to find a business with COST's solid comp/membership growth, while relative e-commerce insulation differentiates its value proposition from other retailers," Gutman said. "We are Overweight even as the stock trades at an elevated valuation given COST's scarcity value, safety, and scale." UBS, buy, $1,205 Analyst Michael Lasser said the third quarter proved that Costco can successfully mitigate potential challenges posed by tariffs, and lauded the company's "superior consistency and execution." "This quarter was a good illustration of why we think COST is well set up to outperform. Once again, COST generated consistent and robust comp performance month in, month out," Lasser said. "It managed its profitability well amid plenty of uncertainties, including [last in, first out] charges and continued labor investments. It also provided compelling evidence why it should be able to mitigate tariffs while maintaining its moat around value." Deutsche Bank, buy, $1,106 Analyst Krisztina Katai's forecast calls for about 6% upside. "All in, we anticipate COST should continue to extend its top-line strength and share gains, and we see meaningful opportunity from its retail media business, the evolution of its business model and supply chain efficiencies to drive further margin expansion," Katai said. Wells Fargo, equal weight, $1,000 Wells Fargo analyst Edward Kelly remains optimistic on Costco over the long-term, but noted some concern due to its valuation. "One of the highest quality companies in consumer with attractive defensive positioning, but risk/reward isn't appealing to us," Kelly said. "A clear share gainer and [membership fee income] a tailwind, but not immune to the weak pricing backdrop, visibility on sustained margin upside is low and the stock looks expensive given the long-term algo."