Market 2017-10-06 (COST in focus)
Market finally took a pause of the recently rally, finished mixed (DJI red, SP500 red, NASDAQ still green). Except Healthcare and Tech, all other 8 sectors all finished red. Energy performed the worst, -1%.
Following the release, the market now sees the chances of a December rate hike at 98.2%, according to the CME FedWatch Tool, up from yesterday's 77.5%.
In fiscal 2017, the company opened 26 new stores, which included two new markets, France and Iceland. Going forward, the company plans to open 25 new net warehouses in 2018. First Costco store in China is expected to open in Shanghai sometime in 2019.
However, COST is experiencing a gap down today, which is similar to the one when Amazon announced to buy WholeFoods. Some analysts raised a warning flag based on membership renewals and margins. Costco says the renewal drop is due to a credit card switch and is transitory in nature.
“Costco represents one of the most defensible names in retail and we believe many investors continue to overstate the speed and impact of competition entering its space,” wrote Susquehanna analysts led by Bill Dreher. “Given the after-hours weakness in the shares, we believe now is a good time to buy Costco shares and we reaffirm our positive rating.” Susquehanna has a price target of $205.
Cowen rates Costco shares outperform with a $182 price target.
Stifel maintained its buy share rating and $173 price target.
Analysts at BMO Capital Markets also expressed uncertainty about the margins and renewal rate outcomes. Even with the online and delivery announcements, BMO believes there’s “risk these initiatives will weigh on margins over time and may be viewed as defensive.” BMO rates Costco shares market perform with a price target of $160.
Wells Fargo's robot analyst says to dump Facebook, Google. Wells' Ken Sena pointed out that the humans there think otherwise: "Of course, we would reiterate that AIERA remains in test and learn mode, and therefore has no current bearing on our long-term outlooks or ratings (including Facebook and Google, both of which we rate Outperform with $215/$1,250 price targets, respectively).”
Job Market
Payroll data was down amid hurricanes. Nearly 1.5M people reported having a job but were unable to work due to bad weather, the highest number since early 1996, and average hourly earnings jumped 2.9% Y/Y, perhaps reflecting low-wage earners dropping out of the sample because the hurricanes had prevented them from working.Following the release, the market now sees the chances of a December rate hike at 98.2%, according to the CME FedWatch Tool, up from yesterday's 77.5%.
Crude Oil (USO -2.7%)
The total U.S. rig count fell by 4 to 936 following last week's gain of 5, and have decreased in four of the past five weeks, according to the latest Baker Hughes survey. The oil rig count fell by 2 to 748 and gas rigs also slipped by 2 to 187.Costco (-6%)
Beat both top and bottom lines in Q4 earning. E-commerce sales were up 27% in the quarter. Chief Executive Richard Galanti said on the late Thursday earnings call that the company has been beefing up the functionality of the e-commerce site, improving search, checkout, order tracking and the returns process, along with improving the merchandise on the site. In addition, Costco has rolled out Costco Grocery, offering two-day delivery on dry grocery, and an expanded same-day delivery service through a partnership with Instacart.In fiscal 2017, the company opened 26 new stores, which included two new markets, France and Iceland. Going forward, the company plans to open 25 new net warehouses in 2018. First Costco store in China is expected to open in Shanghai sometime in 2019.
However, COST is experiencing a gap down today, which is similar to the one when Amazon announced to buy WholeFoods. Some analysts raised a warning flag based on membership renewals and margins. Costco says the renewal drop is due to a credit card switch and is transitory in nature.
“Costco represents one of the most defensible names in retail and we believe many investors continue to overstate the speed and impact of competition entering its space,” wrote Susquehanna analysts led by Bill Dreher. “Given the after-hours weakness in the shares, we believe now is a good time to buy Costco shares and we reaffirm our positive rating.” Susquehanna has a price target of $205.
Cowen rates Costco shares outperform with a $182 price target.
Stifel maintained its buy share rating and $173 price target.
Analysts at BMO Capital Markets also expressed uncertainty about the margins and renewal rate outcomes. Even with the online and delivery announcements, BMO believes there’s “risk these initiatives will weigh on margins over time and may be viewed as defensive.” BMO rates Costco shares market perform with a price target of $160.
Other News
HLF (+10%) expects to accept ~6.7M shares at a cash purchase price of $68, representing a total cash cost of ~$457.8M exclusive of fees and expenses. The share purchases will be funded by a $1.3B term loan under its $1.45B senior secured credit facility established in February.Wells Fargo's robot analyst says to dump Facebook, Google. Wells' Ken Sena pointed out that the humans there think otherwise: "Of course, we would reiterate that AIERA remains in test and learn mode, and therefore has no current bearing on our long-term outlooks or ratings (including Facebook and Google, both of which we rate Outperform with $215/$1,250 price targets, respectively).”
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