William Blair initiated research coverage of Costco Wholesale Corporation (COST $498.65), a big-box retailer offering its membership base exclusive access to discounted prices across groceries, fresh food, general merchandise, services, and gasoline.
Analyst Phillip Blee estimated that the company would increase EPS by 15% in 2023, to $15.15, and grow EPS an additional 8% in 2024, to $16.36.
“Costco is the third-largest global retailer, offering its members exclusive access to discounted prices across a diverse assortment of high-quality products and services,” said Blee. “Now operating in 850 locations across North America, Europe, Asia, and the Southern Pacific region, Costco is known for its industry-leading value proposition, driven by low prices, high quality, and its best-in-class private-label brand. And it is the company’s strong value proposition, along with its superior merchandising and broad product and service assortment, that supports leading levels of customer engagement and loyalty, evidenced by its 91% global member renewal rate and elevated warehouse productivity. In our survey of nearly 600 individuals that we carried out to assess the perceived quality of Costco’s value proposition, we found that Costco ranked first in each category—brand trust, best product price, quality, and customer service and experience—compared with Amazon, Sam’s Club, Target, and Walmart.
“Costco’s engaged membership base, with the company having more than 68 million paid members worldwide and roughly 123 million membership card holders; healthy earnings, with nearly $235 billion in revenue in the trailing 12 months as of February 2023; and strong cash profile are supplemented by an extensive runway for long-term growth,” added Blee. “The company’s top growth drivers include industry momentum, white space for new warehouse openings, international expansion, improving member productivity, and investments in omnichannel functionality. Ultimately, we believe that Costco is well positioned for further market share expansion amid a more volatile environment in the near term with several tangible opportunities to maintain its strong momentum over the next decade.”
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