Costco Wholesale, represented by the ticker $COST, is poised to reap significant benefits from ongoing market share expansion and enhanced warehouse productivity. According to insights released by Morgan Stanley on Monday, the retail giant is on track to achieve growth rates that exceed historical averages.
The brokerage has elevated its price target for Costco’s stock from $855 to $950, maintaining an overweight rating, which reflects their confidence in Costco's robust market position. Following this announcement, shares of Costco saw a close of 2.3% higher on Monday, indicating strong investor sentiment towards the stock. Morgan Stanley's research underscores that the foundational drivers of Costco’s growth are resilient and sustainable.
The firm's analysis suggests that both Costco's historical performance and its future potential in the retail sector indicate a favorable trajectory for the company. The brokerage emphasized that Costco is among the most compelling compounding growth narratives within the retail industry. It is expected that the company will demonstrate growth rates and expansion capabilities that surpass historical averages moving forward.
Importantly, this anticipated growth is characterized as not needing to be exceptionally rapid, suggesting a steady and reliable increase. The brokerage's projections include an average total comparable sales growth of 6.5% from 2024 to 2033. This projection encompasses comparable sales within the US, which are expected to range between 6% and 6.5%.
When compared to past performance, the total comparable sales from 2014 to 2023 averaged 6.6%, with an average of 5.5% when excluding the pandemic years—a testament to Costco’s resilience throughout various market conditions. Moreover, Morgan Stanley is estimating that total revenue growth at Costco will align with a robust 8% over the ten-year horizon, consistent with the company's pre-COVID growth averages.
The report highlights that retail sales per average warehouse are set to escalate significantly, projected to reach $365 million during the 2024 to 2033 period. This represents a marked increase from the $205 million observed from 2014 to 2023. The anticipated growth in total memberships is equally optimistic, with expectations set between 7% and 7.5%, contrasting with an average membership growth of 5.8% from 2014 to 2023.
Furthermore, earnings before interest and taxes (EBIT) are also projected to see an average growth of 9% from 2024 to 2033, leading to a compound annual growth rate (CAGR) of 8% over the decade. As the market landscape evolves, Costco Wholesale remains a critical player, continuing to adapt and thrive in an increasingly competitive sector.
With its strategic focus on enhancing operational efficiencies and expanding its market share, the company is well-positioned for sustained success in the years ahead..