Costco is uniquely situated in an inflationary environment and could stand to gain as consumers get increasingly price conscious, according to Cowen. Analyst Oliver Chen named the stock a best idea for 2023 with a price target of $650, which implies a 35% upside from Thursday’s close. “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,” he said in a note to clients. The company’s sticky membership is underappreciated, Chen said, with the long-term renewal rate at about 90%. The analyst added that the company has consistent traffic driven by what he called a “value inspired treasure hunt” and service offerings. Its member base skews toward high-income customers more than Target or Walmart does, according to Cowen data. But Chen said Costco could also gain a wider swath in an economic downturn as consumers increasingly look for value, which is something the wholesaler has become known for. On the consumer end, the wholesaler gets boosted by the quality of its private label called Kirkland and the fact that 50% of visits for gas turn into an in-store visit. Chen also said Costco’s focus on volume sales and item-driven assortment, and the fact that it has large-scale operations, places it ahead of competitors on batting down supply chain and inflationary headwinds. Utilizing ocean freight through 2025 should also help, he said. The company will face challenges with tough comparable sales, but he said it should have no problem continuing the growth seen before the pandemic-induced spike. — CNBC’s Michael Bloom contributed to this report.
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