Costco Wholesale shares fell Wednesday after analysts downgraded the warehouse retailer’s stock, citing valuation concerns.
Gordon Haskett analyst Chuck Grom downgraded Costco’s stock from “buy” to “accumulate.” This means we expect the company’s stock to outperform total shareholder return by less than 10%. Grom also maintained his $775 price target.
Grom’s downgrade of the retailer comes after its stock price rose 41% in the past 12 months. Investors rallied behind the company’s special dividend announced in December, sales growth and record membership renewals.
However, Costco’s stock price has fallen 10% from its March 7th high of $785.59. Costco stock has also received downgrades from two analysts so far this year. For Grom, the downgrade is rooted in valuation concerns.
“With valuations at record highs, any sign of economic slowdown (or strategic tweaks) could make stocks vulnerable to a pullback,” he said. Costco’s forward P/E ratio is currently 42.4x, which is higher than the five-year average of 35.7x.
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Costco stock fell 0.8% to $705.69 Wednesday.
S&P500
It increased by 0.1%.
Costco wasn’t the only retailer that Grom downgraded Wednesday.he hurt dollar tree
,
Five Below
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and lowe’s
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Similarly, he said there was a “notable wall of concern” in the stock price to consider. He specifically pointed to recent increases in gas prices and uncertainty about when home improvement activity will pick up if mortgage rates remain high.
Grom downgraded Dollar Tree stock from “buy” to “hold” and lowered its price target from $150 to $140 due to concerns about the Family Dollar division’s performance. He downgraded Five Below’s stock from “buy” to “accumulate” and lowered his price target from $210 to $200 due to concerns about an increase in shoplifting. The analyst downgraded Lowe’s stock cut from accumulate to hold, citing declining demand for home improvement. Grom maintained its price target of $245.
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Dollar Tree stock rose 0.4% to $135.14 on Wednesday, while Five Below and Lowe’s fell 2.1% to $167.49 and 0.6% to $243.04, respectively.
Email Angela Palumbo at angela.palumbo@dowjones.com.
