Amazon’s Blockbuster Deal for Whole Foods Means Almost Nothing to Costco, Analyst Hints

Shares of Costco Wholesale (COST) were higher by 1.38% to $159.31 on Monday, following a rating upgrade to “outperform” from “market perform” at Raymond James.

The rating change comes as the firm believes that Costco stock has been oversold in the wake of the blockbuster Amazon.com (AMZN)  , Whole Foods (WFM) merger. Grocery and related stocks took a hit after the $13.7 billion deal was announced earlier this month.

With Amazon moving into the grocery space investors are concerned the industry will be faced with the same margin pressure that Amazon and other ecommerce platforms have placed on the retail sector.

However, Raymond James believes Costco will be able to weather the coming storm and defend itself from Amazon’s takeover.

“Since June 15 (the day before Amazon announced its Whole Foods acquisition), COST has pulled back ~13%, versus ~0% performance for the S&P 500. Admittedly, even with the recent pullback, Costco still trades at a premium valuation to the overall market and its large retail peers,” Raymond James said in a note.

“Nonetheless, its business model remains intact with healthy membership growth and strong renewal rates. In addition, prior year comparable sales comparisons remain favorable as we enter FY18 and earnings growth should begin to benefit from membership fee increases. So, while Amazon’s agreement to buy Whole Foods, when consummated, will add a new dimension to the grocery business, it does not materially impact Costco’s unique business model, and we would be buyers on COST’s recent weakness,” the note continued.

What’s Hot On TheStreet

READ ---  Pence naming new chief of staff

Unusual to hear these words: Under Armour’s (UAA) founder Kevin Plank has never been one to sound weak in a public setting. Plank is known for his motivational speeches to employees and desire to crush all competition. So, it was odd to hear Plank say rival Nike (NKE) “isn’t playing fair” on the Today Show on Sunday — it sounded like a CEO who after several below plan quarters is finally realizing how challenging it will be to dethrone Nike.

Hat tip to Ford: A noted supporter of recycling, auto legend Henry Ford would be proud to know his spirit of conservation is still alive and well in the company that bears his name.

And in fact, as TheStreet learned on a recent trip to Ford’s (F) Dearborn, MI. headquarters, the founder’s recycling efforts have been taken to a whole other level. Within Ford’s Plastics and Materials Sustainability Research Department, which is tasked with finding ways to create auto parts from things found in the Earth such as soybeans and agave plants, senior technical leader Deborah Mielewski showed off a new coin tray made from shredded cash.

It took about $400 of cash to make the coin tray, said Mielewski.

Shout out to the 1990s: It may be time to cash in those Tesla (TSLA) stock gains and go out and buy one of these new classic cars, TheStreet reports. There are several models from 1992, including the early version of the Dodge Viper, that are starting to take off in value.

Nestle rips to a high: Shares of chocolate maker Nestle touched an all-time high Monday after activist investor Third Point, led by Dan Loeb, revealed it had built a stake in the group and pressed for asset sales and increased buybacks. The stake is worth more than $3.5 billion, making Third Point one of Nestle’s top 10 shareholders. For Loeb, this is one of his boldest bets yet as he tries to shake up the staid consumer packaged goods giant.

READ ---  The Bank of England prepares to jump the gun

Visit here for the latest business headlines.

Source