Costco isn't raising its membership fee. Analysts are disappointed.

By James Rogers

Costco, which reported fourth-quarter results Thursday, last raised its annual membership in 2017

Costco Wholesale Corp. reported nearly $60 billion in fourth-quarter sales after market close Thursday, although the lack of a hike in membership fees is once again a talking point following the company's results.

The warehouse retailer's last rise was in 2017, when it raised the cost of its least-expensive annual membership to $60.

"Costco did not make an announcement with respect to the much anticipated membership fee hike, which may be disappointing to some at current share price levels, but a fee increase continues to be a question of when, not if," BMO Capital Markets analyst Kelly Bania, wrote in a note released late Thursday.

Related: Costco posts quarterly sales near $60 billion. It wasn't enough to boost the stock.

Bania noted that Costco's (COST) membership fee income remained strong, with 8.2% year-over-year-growth, above BMO Capital Market's 7% growth forecast. BMO Capital Markets maintained its outperform rating and $770 price target for Costco.

D.A. Davidson analyst Michael Baker also highlighted the lack of a membership-fee increase. "No mention of a membership fee increase may be seen as a catalyst lost," he wrote.

Costco shares fell after the company reported its mixed fourth-quarter results. They were down 3.9% in premarket trades Friday. The stock is up 66.7% over the last 12 months, outpacing the S&P 500 index's SPX gain of 31.6%.

Related: Costco membership-fee hike is coming

"COST stock out-performed last year and has been an outperformer year to date in 2024 as well," wrote D.A. Davidson's Baker, in the note. "That set a high bar and is likely contributing with the small sell off post results." D.A. Davidson maintained its neutral rating for Costco and raised its price target to $680 from $600.

Costco CFO Richard Galanti was asked about the membership fee increase during the conference call to discuss the company's fourth-quarter results. "We will at some point, I'm sure, do it," he said, in response to an analyst's question, but did not give a timeframe.

The gap since the last membership-price increase continues to widen, according to Truist Securities analyst Scot Ciccarelli. "Costco continues to move further from its historical cadence for increasing their membership fees (typically every 5-6 years and now at almost 7)," he wrote in a note released Thursday. "However, the company continues to slowly improve the profitability of its core business."

Related: Target says consumers 'still feel stretched' but stock surges on big fourth-quarter profit beat

"Further, we think the MFI raise is more of a Wall Street talking point than a true, incremental profit driver due to the reinvestment of value back into their products," Ciccarelli added. Truist Securities maintained its buy rating for Costco and raised its price target to $815 from $741.

"Costco is a defensive name by nature due to its membership model that generates predictable sales and profits, an attractive value-orientation, a higher-income customer, and a relatively significant penetration of consumables as a % of sales," Jefferies analyst Corey Tarlowe wrote in a note released Friday.

"Additionally, the company continues to open new clubs in the U.S., and has a meaningful runway for ongoing international expansion, notably China. Further, we believe Costco could raise its membership fee in the future, providing upside to estimates ahead," he added. "Also, we believe Costco is well-positioned for further share gains ahead." Jefferies reiterated its Costco buy rating, and raised its price target to $905 from $790.

Related: BJ's delivers Q4 earnings beat but guidance impacted by 'macro-driven uncertainty'

Of 36 analysts surveyed by FactSet, 23 have an overweight or buy rating, 12 have a hold rating, and one has a hold rating for Costco.

-James Rogers

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03-08-24 0852ET

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