Bank of America named Costco a top pick because of rising food inflation, and expects shares have further upside from here. “We expect high food inflation to drive continued share gains for the warehouse club channel (including Costco) given the strong value proposition and price positioning on overlapping SKUs vs. mass and traditional grocery,” analyst Robert Ohmes wrote in a Tuesday note. Costco has outperformed this year as rising inflation drove shoppers to buy lower-priced goods from the retailer. The stock is down just under 8% this year, while the S & P 500 is off by 16%. The analyst said he expects further price increases will continue to give Costco an edge. What’s more, he suspects Costco is experiencing excess demand that should help the company expand. “Given continued productivity gains and increasing sales/sq ft, we believe COST has opportunity (and need, in our view) to accelerate store growth in the U.S.,” Ohmes wrote. The analyst expects that Costco could increase its membership fee next year, which the retailer historically does every five to six years, according to the note. Costco last increased its membership fee in June 2017. He said the stock is at an attractive valuation given an “all-time high” return on invested capital, or how well Costco is managing its capital toward profitable enterprises or investments. The analyst’s $605 price target implies more than 15% upside from Monday’s closing price. —CNBC’s Michael Bloom contributed to this report.
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