Costco (COST) Is ‘Selling a Lot of Gas,’ Analyst Says. But There’s a Catch

Costco (COST) is “selling a lot of gas per our latest checks,” Mizuho said on Thursday, maintaining its Buy rating on the wholesale retailer. This comes as the average selling price of the product climbed about 20% in March.

However, Mizuho analyst David Bellinger warned that because fuel is a very low‑margin business, gas revenues could slightly drag down Costco’s overall merchandise gross margin percentage, excluding earnings from membership fees, as past cases have shown. This could create “bad optics” if the retailer reports a gross margin that misses consensus estimates.

In March — or the five-week period that ended on April 5 — Costco grew its net sales by 11.3% year-over-year to $28.41 billion. Its comparable sales from stores opened for at least 12 months climbed by 9.4% from the same period a year ago.

Costco to See More Benefits from Higher Gas Prices

Mizuho has previously described this performance as “exceptionally strong.” In his latest commentary, Bellinger further emphasized that higher gas prices contributed about 250 basis points to Costco’s comparable sales in March.

“If gas prices hold at current levels, this sales benefit could gravitate upwards in coming months and quarters given what would be year-over-year price inflation of +30% or more,” the analyst further noted.

Despite pointing out the “penny profit” nature of the $30 billion fuel business, Bellinger remains bullish on Costco. In addition to reaffirming his Buy rating on COST stock, he raised his price target by $1,065 to $1,100, which represents about 12% upside potential.

Is Costco Stock a Buy or a Sell?

Across Wall Street, Costco’s shares continue to carry a Moderate Buy consensus rating from analysts. This is based on 16 Buys, six Holds, and one Sell issued by 23 analysts over the past three months.

However, the average COST price target of $1,099.22 suggests more than 11% growth potential from current levels.