Costco (COST) Stock Jumps 2% After Crushing March Sales Forecasts

TLDR

• Costco’s March net sales hit $28.41B, up 11.3% year-over-year, beating analyst expectations
• Gas prices jumping 17.8% helped drive traffic and boosted ancillary business growth into the mid-20% range
• Truist called results “solid” but kept its Hold rating, citing a valuation of ~48x earnings
• Truist maintained its $977 price target, implying about 5% downside from current levels
• Wall Street consensus sits at Moderate Buy (15 Buys, 6 Holds, 1 Sell), with an average target of $1,090.50

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Costco posted March net sales of $28.41 billion for the five-week period ending April 5. That’s an 11.3% jump from $25.51 billion in the same period last year.

Costco Wholesale Corporation, COST

Total comparable sales — covering warehouses and e-commerce active for at least a year — grew 9.4% year-over-year. That came in well ahead of what analysts were penciling in.

Before the report, Telsey analyst Joseph Feldman had forecast total sales growth of around 7.7%, boosted by higher gas prices and a weaker dollar. Costco cleared that bar with room to spare.

Gas was a real tailwind here. Pump prices rose 17.8% during the period, pulling more customers into Costco’s stations for cheaper fuel. That traffic spill carried over into the core business.

Truist’s five-star analyst Scot Ciccarelli noted that the gas boost helped drive mid-to-high single-digit growth in Costco’s fresh food and non-food categories.

Ancillary Business Surges

Costco’s ancillary operations — gas, pharmacy, eye care, and food court — posted growth in the mid-20% range during the period. That’s a strong number for what’s often considered the company’s secondary revenue stream.

Despite the upbeat tone, Truist kept its Hold rating on COST. Ciccarelli sees the upside and downside as roughly equal from here, given a valuation sitting around 48 times annual EPS.

He also held his price target at $977 — about 5% below where the stock is currently trading.

Valuation Still the Sticking Point

This isn’t the first time valuation has come up as a concern. COST is up around 20% year-to-date, and that run has made some analysts cautious about the entry point.

Costco’s P/E sits at 53.6. For context, its most recent quarterly EPS came in at $4.58, beating estimates of $4.55. Revenue for that quarter was $69.6 billion, up 9.2% year-over-year.

The broader Wall Street picture is more constructive. Of 22 analysts covering the stock, 15 rate it a Buy, six have it at Hold, and one says Sell. The average price target is $1,090.50, implying around 6% upside from current levels.

BMO Capital Markets has the most bullish target on the Street at $1,315. UBS and Robert W. Baird sit at $1,175 and $1,100 respectively.

Meanwhile, Costco continues to move on several operational fronts. It’s testing a checkout system that could process transactions in under 10 seconds. It’s also trialing Kirkland Signature energy drinks that mimic Celsius flavors at lower prices.

A first standalone Costco gas station is also in development, and new club openings — including a New Braunfels location this spring — continue to add membership revenue.

The stock carries a quarterly dividend of $1.30 per share, an annualized yield of 0.5%.

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