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Costco Wholesale Corp. will offer a special dividend in the near future, warn analysts Stifel and JPMorgan.
Costco
COST, -0.81%
Third quarter results were well above expectations after Thursday's bell. Store sales growth of 5.5% also exceeded the FactSet consensus for an increase of 5.1%.
"We believe that Costco remains one of the best retailers in the category, which should continue to generate solid growth in its business," wrote Stifel analysts, led by Mark Astrachan. "We also believe that it is likely that the company will declare a special dividend over the next two quarters."
Stifel evaluates Costco shares for purchase with a target price of $ 261.
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"By taking a step back, Costco continues to outsell its peers and most retailers and is a long-term bottom line," JPMorgan analysts said. "In addition, we continue to believe that a special dividend is being prepared ($ 18.5 per share in total cash)."
JPMorgan, which awards a target price of $ 252 to the overweight to Costco, is particularly optimistic for the warehouse retailer, calling its value proposition "unmatched" and citing its "loyal" customer base and growth potential.
Costco recorded a 90.7% renewal rate in the United States and Canada in the third quarter. Worldwide, the turnover rate was 88.3%.
"Given the company's growing online offering and the enhanced value proposition of its Visa credit offering, we are seeing a stock exchange opportunity both in-store and online," said JP. Morgan. "Finally, we note the increase in membership fees and closing by competitor Sam's Club ~ 63 stores in the United States and Puerto Rico to start the year; we think the time is right to acquire Costco. "
Sam's Club is part of Walmart Inc.
WMT, -0.73%
wallet.
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In addition to investments in e-commerce and international expansion, UBS analysts also note the launch of the self-service payment system in approximately 125 of Costco's 536 US locations.
"Our members are using it," said Richard Galanti, Costco's chief financial officer, when calling the results, according to a FactSet transcript. "And so, it saves a bit of work in the beginning."
It is expected to reach 250 sites over the next few months.
"We believe that adding this option can help alleviate the difficulties in cluttered clubs (long queues), while also helping Costco to moderate its labor expenditures by upstream, "said UBS analysts. "This type of investment in convenience should make Costco even more attractive to potential members in the coming years, helping to support its flywheel."
UBS is evaluating the purchase of Costco shares with a target price of $ 280.
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Costco has also used its call for results to address the problem of margins and prices, especially with respect to rates, as retailers like Walmart and Target Corp.
TGT + 0.07%
said will increase prices for consumers.
"[W]We were obviously asked when prices went up, when costs went up, we want to be the last ones to raise them, and then when prices go down, we want to be the first ones to lower them, "Galanti said.
The company "expedited shipments" before certain tariffs were lifted or entered into force, discussed with new and existing sources and reduced some orders. Galanti said that Costco was just starting to see the impact, which varies from one supplier to the other.
"We believe we are well positioned in terms of size, capacity and supplier relationships, and we will keep you up to date," he said.
The Costco stock is down 1.1% in trading Friday, but up 17.3% for the year so far. The S & P 500 index
SPX, -1.32%
s up 10.2% for 2019 to date and the Dow Jones Industrial Average
DJIA, -1.41%
gained almost 7%.
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