Benzinga | May 28, 2021 02:03PM EDT

Why BofA Is Bullish On Costco Stock After Q3 Earnings

Costco Wholesale Corporation (NASDAQ:COST) reported fiscal third-quarter results that were ahead of expectations, driven by higher comps and lower COVID-19 costs, according to BofA Securities.

The Costco Wholesale Analyst: Robert Ohmes maintained a Buy rating for Costco Wholesale and raised the price target from $415 to $435.

The Costco Wholesale Takeaways: The company's upbeat same-store sales were driven by both traffic and ticket gains, Ohmes said in a note.

"E-commerce comps increased 38.2%," the analyst said. "SG&A as a % sales decreased 86bps (ex-gas) primarily due to lower COVID-19 costs ($44mn in F3Q21 vs. $239mn LY)."

Ohmes raised BofA's Costco earnings estimate for fiscal 2021 from $9.75 per share to $10.30 per share.

"We continue to expect comps to moderate into F4Q as comparisons become more difficult and 'return-to-normal' trends continue," the analyst said.

Costco Wholesale's comps and margins should continue to be supported by the following, he said:

* Continued decline in COVID-19 related costs

* New club growth

* Ancillary growth, including the reopening of food court

* Continued integration of Innovel (now Costco Logistics)

COST Price Action: Shares of Costco Wholesale were down 2.43% at $378.10 at last check.