Costco Stock Rises 14% YTD—Can It Justify a Lofty 58x P/E?

Costco (NASDAQ:) stock is up about 14% year-to-date.

Costco saw its stock price surge 3% on Friday to $1,040 per share after the big box retailer reported solid fiscal third quarter earnings.

Costco beat earnings and revenue estimates and exhibited growth in the face of tariffs.

The company reported an 8% increase in revenue to $63.2 billion, which beat estimates of $63.1 billion.

Net income jumped 13.1% in the quarter to $1.9 billion, or $4.28 per share. That bested the consensus analyst estimates of $4.24 per share.

Net sales increased 8% to about $62 billion, while membership fees rose 11% to $1.24 billion.

The big box store also had strong comparable store sales, as they spiked 5.7% overall. In the United States, comparable store sales increased 6.6%, year-over-year, while they were up 2.9% in Canada and 3.2% in other international markets. Excluding gas sales, comparable store sales rose 8% overall. Digital, or ecommerce, comparable sales rose 15% in the quarter.

Costco saw paid memberships increased by 7% in the quarter to 79.6 million and its membership renewal rate worldwide was 90.2%. Also, it is on track to open 24 new stores in this fiscal year, with 15 already opened. It will also relocate three more stores.

Limiting Tariff Impact

Costco limited the impact of tariffs on earnings in several ways, explained CEO Ron Bakris on the earnings call.

“We’re remaining agile as the situation with tariffs evolves, while also supporting the commitments we’ve made with our long-term suppliers. As an example of this, during the third quarter, we rerouted many goods sourced from countries with large tariff exposure to our non-U. S. markets,” said Bakris. “In The U. S., we pulled forward some items that we had planned for the summer and sourced additional locally produced goods to reduce tariff impacts and ensure that we were in stock.”

Costco imports about one-third of its products into the U.S. with about 8% coming from China, so it has perhaps less exposure to tariffs than other large retailers. Most of its imports are non-food items.

The higher inflation in non-food items resulted in a $130 million LIFO charge, which impacted earnings and the gross margin. Costco CFO Gary Millerchip said on the earnings call that the LIFO charge is calculated by comparing the “net landed cost of inventory at the beginning of the fiscal year with the net landed cost of inventory on hand at the end of the current quarter.“

Millerchip added that if the current rate of inflation stays the same through the fiscal year, Costco would have an additional $40 million to $50 million LIFO charge in the fourth quarter.

Costco got several price target upgrades after posting Q3 earnings, including a $75 per share bump from Morgan Stanley and a $47 per share increase from Truist. Costco stock has a median price target of $1,088 per share, which would suggest a 7% increase over the current price.

Costco stock is up 14% YTD but it has a high P/E of 58, so that bears monitoring.

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