Wholesale retailer Costco’s (COST) shares are up over 18% since the start of the year and could be set for more gains as the price of U.S. gasoline hit $4.50 on Tuesday — the highest level in nearly four years.
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Trade AMZN with leverageU.S.-Iran War Fuels Surge in Gasoline Prices
According to the American Automobile Association, the national average retail price for regular unleaded gasoline also climbed to $4.54 per gallon. This is only 50 cents short of the all-time high of $5.01 seen in June 2022, months after Russia invaded Ukraine, starting the latest war between the two countries.
Gasoline prices have been rising globally on the back of the U.S.-Israel-Iran war, even as the Middle East conflict has dragged on longer than expected, causing the biggest energy crisis in history.
Gasoline Surge Lifts Costco’s March Sales
Last month, Costco reported “exceptionally strong” March sales — referring to its performance during the five-week period that ended on April 5 — with its net sales reaching $28.41 billion, up more than 11% year-over-year. Truist Financial’s five-star analyst Scot Ciccarelli has said that soaring gas prices helped to feed that growth.
Ciccarelli noted that the roughly 18% jump in pump price of gas during the period helped Costco to deliver mid-single-digit to high-single-digit growth in its core fresh food and non-food businesses. This is because Costco’s cheaper gas prices attract more customers, some of whom also visit the wholesale retailers’ stores while making their purchases.
Another Sales Boost Incoming?
In addition to this, Mizuho analyst David Bellinger recently noted that his checks showed that Costco was selling a lot of gas. However, the researcher pointed out that because fuel is a low-margin business, this might slightly dilute the wholesale retailer’s merchandise gross margin percentage, excluding earnings from membership fees.
Nonetheless, Costco could be set to deliver another solid sales figure for April, with growth also propped up by surging gasoline prices. This is even as Bernstein analyst Zhihan Ma has pointed out that the retailer “remains the most price-competitive” compared to rivals such as Walmart (WMT) and Amazon (AMZN).
Is Costco a Good Stock to Buy Now?
Across Wall Street, analysts continue to encourage a cautious approach to Costco’s shares and have a Moderate Buy consensus rating on the stock. This is based on 15 Buys, six Holds, and one Sell issued by 22 analysts over the past three months.
Moreover, the average COST price target of $1,102.12 only implies about 8% upside.
