Costco Wholesale (COST 1.01%) stock has been reaching new highs in 2024, but it could have more room to run. The warehouse club retailing giant received another analyst upgrade late Monday, which helped push the stock higher in early Tuesday trading.
BMO Capital reiterated its bullish overall rating on Costco's stock while boosting the target share price to $800 from $770. Hitting that number would mean a further 9% appreciation for Costco shares over the next 12 months or so, which have rallied nearly 56% in the past year.
The good news
There's good reason for this latest burst of Wall Street enthusiasm. Costco in early March revealed that its comparable-store sales growth rate accelerated in fiscal 2024's Q2 (ended Feb. 18). Gains were especially strong in its e-commerce division, which tends to tilt toward discretionary purchases like jewelry and home furnishings. But Costco also attracted higher traffic at its stores into early 2024.
BMO Capital leaned on these positive results in arguing that the stock deserves a much higher premium than you'd normally expect from a retailer. The analyst assigned a P/E multiple of about 46, in fact, while rivals like Walmart trade at 32 times earnings and Target is available for below 20 times earnings.
Worth the premium
Costco's higher valuation is a function of its steady market share growth in the industry, along with the stable profit that flows from its annual subscription fee payments. But the best reason to like the stock today is the fact that Costco is setting new highs in its most important engagement metric: member renewals.
The chain's shoppers are renewing their annual commitments at a blazing 93% today, which implies that they're getting plenty of value from their visits. Given that success, the business, and the stock, should have more records to set in the coming years.
