Costco Wholesale (COST) reported “solid” earnings per share growth in fiscal Q1 despite below-average comparable sales, but its special dividend could potentially impact fiscal year 2024 EPS, Morgan Stanley said in a note to clients Friday.
Costco’s earnings before interest and taxes still grew 7.6%, while its EPS jumped over 12% in the quarter, roughly in line with pre-COVID-19 pandemic levels. US comparable sales of 2.6% and total comparable sales of 3.9%, excluding gasoline, were below the average of 5% from 2016 to 2019, according to the note.
Morgan Stanley analysts said that fiscal 2024 comparable sales and EBIT estimates “look safe” and they don’t expect analysts’ forecasts of 4.3% in comparable sales growth and $8.9 billion in EBIT to “significantly change.”
The retailer’s special dividend of $15 per share, which is the highest special dividend set in more than a decade, is expected to reduce the company’s cash balance by almost $6.7 billion and cut Morgan Stanley’s fiscal 2024 net interest income estimate by roughly $165 million, representing a 2% impact to the company’s fiscal 2024 EPS, the firm’s analysts said.
The investment firm raised its price target on Costco to $675 from $585 and kept its overweight rating.