Key points:
- Costco shares were downgraded by Wells Fargo
- The firm said it sees a number of hurdles for the company
- Costco’s share price target was also cut by the firm
Costco (NASDAQ: COST) shares declined Monday after Wells Fargo downgraded the stock, telling investors they see a “number of hurdles.”
Costco shares, which are down around 15% in 2022, hit a low of $474.50 during Monday’s session before closing at $488.55, up 0.44%.
Wells Fargo analyst Edward Kelly downgraded Costco Wholesale to Equal Weight from Overweight, cutting the firm’s price target on the stock to $490 from $600 per share.
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Kelly said in a note to clients that they see a “number of hurdles” in Costco’s path and labeled it a “rich multiple stock.” He added that Costco’s comps carry a risk of slowing more than anticipated on food “dis-inflation,” the lapping of outsized traffic gains in gas, and a weakening consumer.
In addition, he believes an eventual pullback in fuel margins and currency exposure could increase the pressure on Costco’s momentum, and he sees more risk to consensus estimates than potential upside going forward.
In contrast, Morgan Stanley analyst Simeon Gutman told investors in a note back in late October that after hosting meetings at Costco HQ this week with CFO Richard Galanti and other members of the company’s management team, their tone seemed “constructive” with the inventory overhang decreasing and unit growth and market share gains “cornerstones” of the story. The analyst maintained an Overweight rating and $525 price target on the stock, stating he believes 2023 could be a “special” year for Costco.