Costco Wholesale Corporation (COST) analysts are still seeing opportunity to buy.
Shares of the Issaquah, Washington-based retailer are down by 3.6% as of 9 a.m. in New York despite reporting quarterly revenue that bested analyst estimates by $140 million.
Today's dip could provide a buying opportunity for opportunistic buyers, analysts explain.
"Longer term, we believe COST's unrivaled value proposition to its fiercely loyal customer base and global growth opportunity are a rare combination in retail and consumer staples," J.P. Morgan analyst Chris Horvers wrote in a note on Thursday night. "Given the company's expanding online offering and improved value prop from its Visa credit offering, we see a runway of share opportunity both in-store and online."
He and his team set a price target of $252 for the retailer.
"We believe this is a good time to own COST," his team concluded.
Technology Troubles Overblown
One of the factors pushing down shares is the concern over "material weakness" in the company's internal controls.
The weakness, reported during Thursday evening's earnings release, has fueled the decline this morning.
"Without much further in the initial release, we thought that this issue could potentially present further risk," Deutsche Bank analyst Mike Baker wrote in a note on Thursday evening. "On the call, we think management did a good job mitigating these concerns as remediation efforts are underway and they don't expect any financial results to be restated."
Costco CFO Richard Galanti confirmed that the company will not delay the release of its 10-K filing as a result of these concerns and added that there have been no reports of deficiencies in company reporting thus far.
To be sure, analysts did maintain concerns on margin pressures that were considered more material to the results.
"The drag [on earnings] was the result of a softer than expected gross margin and the investment in labor," Wells Fargo senior analyst Edward Kelly pointed out.
He maintained a market perform rating given the company's squeeze on margin and questions over how much more the company can run given its remarkable year.
Given the company's ability to grow nearly 40% in the past year, short-term concerns on margin and technology troubles are not souring analysts on the overall story for the company.
10 out of 13 analysts releasing research since earnings have issued a buy or outperform rating.
One such analyst as BMO Capital Markets Kelly Bania, Despite the slide driving her to set a "cautious" target of $258 per share on the stock, she reaffirmed the stock's buying opportunity overall.
"We continue to believe COST should remain a core large-cap growth holding and reiterate Outperform-rating," she concluded.