Grocery stocks have been hammered this week after Amazon.com, Inc. AMZN 0.12% announced a $13.7 billion buyout of Whole Foods Market, Inc. WFM 0.33%. Investors fear Amazon will have the same disruptive impact on grocers it has had on the shopping mall. However, the major sell-off in Costco Wholesale Corporation COST 0.39% in the wake of the Amazon deal may have created a buying opportunity, according to Northcoast Research analyst Chuck Cerankosky.
“While several issues have upended the prices of Food Marketing stocks in recent weeks, ranging from e-commerce competition to food deflation to Amazon’s proposed acquisition of Whole Foods, Costco’s business model remains strong, in our opinion,” Cerankosky wrote on Tuesday (see Cerankosky‘s track record).
In fact, the company’s recent membership price increase in the U.S. and Canada that went into effect on June 1 should provide a nice earnings boost, Cerankosky said.
Costco shares are now down 9.7 percent in the past five trading sessions, providing an excellent chance for investors to buy the dip.
Northcoast is anticipating Costco will open 26 net new warehouses in 2017 and a similar number again in 2018. Costco’s recipe for success, Cerankosky said, is opening up new locations, which will drive higher membership sales. As long as membership renewal rates remain strong, Costco’s execution will remain on track.
Northcoast is calling…
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