Earnings are continuing to roll in and investors are generally liking what they’re seeing from many top names in the market. Yesterday evening was Costco’s (NASDAQ:COST) chance to report — and the company didn’t disappoint. Today, COST stock is up more than 1% following the report, which is a strong showing on most days for the stock.
For the period, the company reported revenue of $78.9 billion and EPS of $4.86, which both beat analyst expectations of $77.9 billion and $4.79 per share, respectively. Notably, memberships surged 8% on a year-over-year (YOY) basis, leading to a more optimistic outlook for the company’s future prospects. In this era of high inflation, consumers have been flocking to shop at places like Costco to save where they can.
These results led CNBC’s Jim Cramer to pound the table on Costco, touting the strength of its core business. He called the quarter “beautiful” for the retailer, citing Costco’s shrink numbers — which were much better than their peers — as well as an increasingly lower inflationary environment reported by the firm.
The market has shown mixed sentiment toward these results, with some investors appearing to expect another special dividend and/or price hikes for memberships. That said, with its strong membership growth, Costco is clearly well-positioned for more growth down the road.
Let’s dive into what to make of these results — and examine whether Jim Cramer’s view is the correct one.
COST Stock Surges as Jim Cramer Praises the Retailer
Costco’s earnings were certainly impressive. A top- and bottom-line beat, combined with strong growth in memberships, does paint a nice picture for existing and prospective COST stock shareholders. There’s a reason why this blue-chip name continues to outperform. And given how long Cramer has been bullish on Costco, it’s probably time the market gives the man his due (on this one).
That said, this earnings report wasn’t all roses. The average value of transactions fell by 4% globally and 4.5% in the United States. While this was offset by a surge in store visits, a smaller cart isn’t a great trend for the company.
Additionally, the lack of a special dividend or an indication that membership costs would rise may cause some investors concern. Yes, a decline in the inflation rate is a good thing for the company. But Costco’s value proposition as the place to go when times get tough could also lose its luster, if other retailers are able to squeeze their margins to compete.
Overall, Wall Street analysts appear to remain bullish on COST stock following these results. UBS analyst Michael Lesser called Costco the “gold standard” in terms of retailers. Bank of America reiterated a “buy” rating on the stock with an impressive $610 price target. And Simeon Gutman of Morgan Stanley reiterated an “overweight” rating and a $585 price target. That’s all positive news.
Costco is one of those blue-chip stocks that provides portfolio stability in good times and bad. With uncertainty picking up, it makes sense that investors are flocking to this name right now. Following these strong earnings, that’s perhaps even more true.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
