Customer Loyalty Will Boost Costco Stock After Virus Woes Fade

Even after the hoarding craze subsides, Costco stock should continue to generate strong returns

Call it a grocery-store stock or even a stockpiling stock if you’d like. Whichever category you put it in, Costco (NASDAQ:COST) stock is worth considering as America copes with the impact of the novel coronavirus. The difference maker for Costco stock is the company’s business model, which leverages the psychological power of membership.

Customer Loyalty Will Boost Costco Stock After Virus Woes Fade
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This membership psychology can enhance customer loyalty, which is crucial during a time of crisis. Other factors, such as earnings and revenue growth, could also weigh in Costco’s favor if the numbers paint a favorable fiscal picture.

Strong Revenues Provide a Safe Haven

Before specifically addressing the loyalty factor, it’s important to examine the numbers surrounding Costco’s financial performance. Costco reported its earnings for 2020’s second fiscal quarter, and the numbers were encouraging across the board.

For example, the company’s quarterly earnings per share came to $2.10. That’s a year-over-year improvement of 4.4%. It also beat analysts’ consensus forecast by 1.4%.

Moreover, Costco’s top-line revenues totaled $39.07 billion. That number represents year-over-year growth of 10% and also outdid the analyst community’s forecast.

Joe Feldman of the Telsey Advisory Group describes how the company has managed to thrive during this difficult time, saying, “Costco has seen a surge in demand for coronavirus-related products, such as dry grocery, cleaning supplies, hand sanitizers, and water filtration products.” Feldman’s price target for Costco stock is a very realistic $330.

RBC Capital’s Scott Ciccarelli is even more bullish on Costco stock with a price target of $350. Ciccarelli identifies the stock as a potential crisis hedge, explaining, “Sales trends were strong all month/quarter and then accelerated meaningfully as COVID-19 fears spread … Given the rising concerns over an economic slowdown, COST should provide investors with a relative haven.”

Loyalty Is the Key

Maybe you’ve seen the popular video clips on social media showing frantic shoppers stockpiling paper goods, hand sanitizer, bleach and other household products. Some of those videos were recorded at various Costco locations.

This frenzy of shopping activity won’t last forever, of course. However, Costco’s ability to provide in-demand products could enhance loyalty among current customers while also introducing some new customers to the store. The coronavirus, tragic as it is, could drive increased membership for Costco.

Analysts at Cowen explain how membership-driven revenues and other factors could weigh in Costco’s favor, saying, “We believe Costco is well positioned to continue delivering double-digit earnings growth over the near to medium term driven by square footage growth, membership revenue growth, and industry leading physical store traffic growth.”

Cowen also pointed out that the average household income for Costco shoppers is approximately $74,000. The implication is that Costco shoppers aren’t broke and should be able to continue shopping even during an economic slowdown.

Cowen assigned a rating of outperform to Costco stock and even raised its price target from $350 to $360. Given the aforementioned factors, along with Costco’s very impressive re-subscription rate of nearly 90%, Cowen’s bullish stance is fully justified.

The Final Word on Costco Stock

Until now, you might never have thought of Costco stock as a safe haven. Yet, owing to strong fiscal performance and sustained customer loyalty, it has the potential to ride out the financial storm and reward shareholders with strong returns.

Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.

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