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Costco’s (NASDAQ:COST) Value Proposition Will Support Growth, Says Analyst

Costco (NASDAQ:COST) recently announced its third-quarter financials for Fiscal 2023. Despite the ongoing macro headwinds and pressure on consumers’ discretionary spending, analysts maintain a bullish view of Costco stock. Coming out of the Q3 call, Goldman Sachs analyst Kate McShane increased her price target on COST stock to $545 from $535. McShane rates Costco stock a Buy and expects the retailer to benefit from its value offerings. 

Costco operates through membership warehouses and an e-commerce platform. Its value pricing and vast offerings consistently drive its membership base and customer loyalty, which in turn drives its financials. 

Highlighting the retailer’s pricing power, McShane said, “We continue to have confidence in COST’s value proposition resonating with consumers.” Meanwhile, the analyst lauded the company’s growing membership base. 

Costco generated $1.44 billion in membership fee income in Q3. Further, its membership base continued to increase. Costco ended Q3 with 69.1 paid household members and 124.7 million cardholders, both up about 7% year-over-year. 

Further, its membership renewal rate remained high. Its renewal rate in the U.S. and Canada stood at 92.6%. Moreover, it was 90.5% worldwide. 

Overall, the weakness in big-ticket discretionary products could adversely impact Costco’s short-term same-store sales. However, its value pricing and growing membership base indicate that the retailer is poised to drive higher traffic even amid a weak macro environment. 

Is Costco a Buy or Sell?

With 17 Buy and seven Hold recommendations, Costco stock sports a Moderate Buy consensus rating on TipRanks. Analysts’ average price target of $540.55 implies 11.1% upside potential from current levels.

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Amit Singh
Amit Singh jumped into the world of stock analysis and investing after completing his Post Graduate Diploma in Finance in 2009. Before joining TipRanks in 2020, he worked as an equity research analyst for eight years. With a keen eye for identifying strategic investment opportunities, his work entails evaluating stocks, building financial models, writing company-specific research reports, and identifying the overall financial worth of companies in the consumer staples and technology sectors. In 2017, Amit found a way to combine his expertise in evaluating companies with his passion for writing. He has also worked with the financial research firm Market Realist.