Costco (COST 1.05%) has been one of the most reliable winners in the stock market over its history as a publicly-traded company. Its membership-based warehouse model of selling bulk goods at bargain prices is consistently popular with consumers, and its stock price has reached a new milestone of $1,000 per share.
Following the retailer’s report on November sales, which revealed comparable sales growth of 4.9% (adjusted for fuel and foreign exchange) and revenue growth of 5.6% to $21.87 billion, several Wall Street analysts raised their price targets on the stock.
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Jefferies expects Costco to hit $1,145 next year
Among the analysts raising their price targets, Corey Tarlowe of Jefferies lifted his target from $1,050 to $1,145 and kept a buy rating on the stock, according to multiple reports.
Tarlowe noted that the November results were solid even as the Black Friday weekend shifted out of the comparable month, and he sees strong momentum in the business.
Can Costco keep gaining?
Costco has been one of the few retailers to deliver consistent growth in recent years, a reflection of the strength of its business model and the fact it derives most of its revenue from groceries. While discretionary retailers have struggled recently as consumers moderated their spending, grocery chains have largely been able to raise prices and pass the impacts of inflation down to customers.
However, Costco stock has gotten expensive, especially considering it’s a brick-and-mortar retailer that tends to deliver solid but not breakout growth. It trades at a price-to-earnings ratio of 59 as of this writing. Much of that premium is owed to the company’s competitive strength and its recession-proof model, as investors feel confident in the company’s ability to grow and fend off any potential competition in its niche.
That valuation, though, should limit Costco’s share price growth from here. It’s hard to make a case for further multiple expansion at this point. As such, while Costco still looks like a reasonable buy for long-term investors, they might get a better price if they’re patient.
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale and Jefferies Financial Group. The Motley Fool has a disclosure policy.
