Is it worth owning Costco stock after its Q1 earnings report?

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Costco Wholesale Corporation (NASDAQ: COST) is not inexpensive to own at its current price-to-earnings multiple of over thirty times – but it’s worth paying a premium for this stock, says Cowen’s Oliver Chen.

Is Costco stock a ‘buy’ here?

The chain of retail stores reported weaker-than-expected results this week for its fiscal first quarter. Still, Chen continues to see about a 35% upside ($650 price target) in Costco. His post-earnings research note reiterates:

Costco is well-positioned in an inflationary environment and could also benefit from increased trade down traffic as higher income consumers shop for quality value.

The big box retailer is growing memberships at 5.0% with renewal rates at an impressive 92%. The Cowen analyst is bullish on Costco also for its private label brand – Kirkland Signature. In a recent interview with Yahoo Finance, he noted:

Costco screams value, treasure hunt; being a member enables you to buy goods at lower prices than anywhere else. It’s a fixed, low markup model, so you’re getting a great deal no matter what.

Costco stock down roughly 15% for the year is Chen’s top retail stock for 2023.

Notable figures in Costco Q1 earnings report

Earned $1.36 billion versus the year-ago $1.32 billionEPS climbed from $2.98 to $3.07 as per the press releaseRevenue jumped 8.0% year-on-year to $54.44 billionConsensus was $3.12 a share on $58.36 billion revenueComparable sales up 6.6% were a bit better than expectedDigital sales saw an annualised decline of 3.70%

Dividend and free cash flow are among other reasons why Cowen’s Oliver Chen is constructive on the Costco stock.

One of the big problems in retail has been negative traffic. Costco has distinguished itself with positive traffic and momentum. All these things make for a great story, in our opinion.

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