Why Costco shares could hit $110

The company is one of the few big-box retailers to make money on its international operations -- which gives the company an obvious path for growth in 2013.

By Jim J. Jubak Oct 24, 2012 5:35PM
Young man and woman lifting box into car -- Biddiboo, Stockbyte, Getty ImagesI'm going to take advantage of the recent sell off to add shares of Costco Wholesale (COST) to my Jubak’s Picks portfolio. 

I named the stock one of five picks for a U.S. economy that is likely to show slow, but still better than expected, growth in the fourth quarter and into 2013 in my Oct. 15 post. With the stock down 7% from its Sept. 24 high, and having given back all that appreciation of its recent earnings report and more, I think this is a decent buying opportunity.

Costco popped by almost 2% when it reported fiscal fourth-quarter results on Oct. 10. Same-store sales climbed by 5% on a 4.5% increase in store traffic -- an especially important result this quarter since it showed that an increase in membership fees didn’t turn off shoppers. Operating margins increased by 0.2 percentage points. I expect that margins will increase further in fiscal 2013 as more of that membership fee increase filters down to the bottom line.

Costco is one of the few big-box retailers to make money on its international operations -- which gives the company an obvious path for growth in 2013. Costco plans to open 30 new stores in fiscal 2013 versus 16 in fiscal 2012 and 50% of those new stores will be international. The company gets just 30% of sales from its international stores now.

I calculate a target price of $110 by May 2013 for Costco. The shares pay a 1% dividend. Costco shares closed Wednesday up less than 1% to $95.62.

Jim JubakAt the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. The fund did not own shares of Costco Wholesale as of the end of June. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here. 

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16Comments
Actaeon
Oct 25, 2012 11:53AM
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Why all the ragging on Costco? I fill a three month prescription there for $93. Cigna wanted over $600 for the same exact prescription. Yaaa Costco.
fest22
Oct 25, 2012 12:05PM
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I think every company sells items from China we as a country have let this happen. Let the companys know whay you think by not buying said products.
the blamee
Oct 25, 2012 9:53AM
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The problem with COSTCO is that you pay them to shop at their store. You pay them a lot.
VERITAS VINCIT
Oct 31, 2012 12:50PM
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Looks like 100 million in Insider stock of FB was "disposed off" on 10/26 before the rank and file got to sell theirs.

How does that feel to you rank and file FB employees ?
overtaxed 1952
Oct 25, 2012 1:07PM
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james bond 007   I think your I Q is 007
elmo39
Oct 25, 2012 9:10AM
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Costco sells a lot of food fom CHINA that is slowly poisoning their customers. Any food from China or other Asian nations is not what you should be putting in your mouth. The crap is just that, made from crap
JAMES-BOND-007
Oct 26, 2012 9:05AM
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Tip Costco has the best electronic warranty 2 yrs free !  They match any price too.

 

Tip...Undecided voters....be very afraid of Romney....he is going to make the Cubean Missle Crisis look like a walk in the park.

His $2T War budget increase will be used. He is easily talked into war, he has no reasoning power. His constant flip flop is a sign of his instability !!!  He will draft and send your kids to war. (His won't go, they're exempt)

Evil Chris
Oct 25, 2012 9:57AM
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I hate Costco, I have had memberships there in the past.  Most of the products whether food, clothes, household stuff is not much cheaper compared to other stores.  If you bring a calculator with you and do a comparison of product amount vs price only the largest bulk items give you savings.  If it is a product that expires then you have to ask yourself am I throwing half of this out?  Only their flyer/sales are really that good and they are very situational.  I will no longer shop there, but obviously many are and will continue to do so.  This is the perfect example of why trade with China is a net negative for North America.
JAMES-BOND-007
Oct 25, 2012 8:53AM
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America on the mend, but watch out for this guy he's unbalanced ie MR flip flop...

 

Which Romney will we see today on tv, the real one or the flip flopper ?????

For War against War, for women against women, for middleclass against middleclass, for coal against coal, for medical reform against medical reform.

A real shape shifter, a chameleon. America wake up to this guy he been an opportunist all his life !

Another concerned American
Oct 25, 2012 11:30AM
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Costco customers support the Chinese ,they are nothing less than a buch of greedy selfish Americans.
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