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Buy Costco shares as they ‘benefit from higher levels of food inflation’

on Sep 14, 2022
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  • Oppenheimer analyst explains why Costco shares are great for inflation.
  • The retailer reported an over 15% increase in its Q4 net sales last month.
  • Costco shares have climbed more than 20% over the past four months.

Shares of Costco Wholesale Corporation (NASDAQ: COST) ended more than 5.0% down this evening on talks of another 75 basis points increase in interest rates next week.

Costco shares benefit from inflation

On Tuesday, the U.S. Bureau of Labour Statistics said consumer prices remained near a forty-year high of 8.30% in August. For the month, inflation was actually up 0.1%.

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Still, a Senior Oppenheimer Analyst – Rupesh Parikh likes Costco shares as they stand to benefit from such pressures. On CNBC’s “Power Lunch”, he said:

Costco is still a good bet. The business actually benefits from higher levels of food inflation. So, in the latest quarter, we think Costco saw about a seven-percentage point benefit to the top-line related to inflation.

Food prices, in August, were up 0.8% on a month-over-month basis.

Costco caters to higher income consumers

Last month, Costco said its net sales were up more than 15% in the fourth financial quarter.

The chain of membership-only big-box retail stores is better-positioned to navigate through the inflationary pressures also because it caters primarily to the higher income consumer. Parikh added:

In this environment, the middle-income consumer will go even more frequently to Costco to get the value. At the gas pump, you save money every day and on grocery items, you can save 20% plus. So, they’ll continue to see traffic and share gains.

The Nasdaq-listed retailer has a dividend yield of under 1.0% as well.

Wall Street also has a consensus “overweight” rating on Costco shares that are already up more than 20% over the past four months.