Sales and profit lifts to Costco (COST) from surging gas prices may already be pumped into the retailer's stock price.
Since the start of Operation Epic Fury on Feb. 28, Costco stock has gained 1% — outperforming the S&P 500's (^GSPC) 8.2% drop. The relative outperformance reflects investors rallying around a simple, two-part thesis on Costco.
First, spiking gas prices send people to Costco for the cheapest possible gas, which in turn sends them into a Costco store for the cheapest possible groceries.
Second, about 26% of Costco's sales come from California, where gas prices have soared to $6 per gallon, on average, the highest in the country.
Costco operates gas stations at the majority of its 640-plus US warehouses.
Hardly anyone on Wall Street disputes that Costco is experiencing a big sales lift right now, which is likely to show up soon in the release of March sales.
What the Street is trying to figure out is if Costco's stock already reflects the market share lift from a more uncertain consumer spending backdrop.
"A narrative calling for a P&L benefit from the recent 30% rise in gas prices, while historically accurate, is widely anticipated by investors and has manifest itself in S&P 500 relative outperformance," longtime Costco stock watcher and Guggenheim analyst John Heinbockel said in a note on Tuesday. "Already industry-leading top-line momentum is expected to receive an incremental boost from consumers’ increased pursuit of value."
Heinbockel projects a strong 10% sales growth for Costco in March and "even stronger" results in the next few months.
The analyst offered up some historical context on Costco and rising gas prices.
"In the spring of 2022, the Ukraine conflict drove a 43% increase in retail gas prices, from $3.56 to $5.09, a much steeper ramp to a higher terminal level than we have witnessed thus far," Heinbockel said. "Despite this incremental potential pressure on consumers, near-term operating momentum improved. Two-year gallon growth accelerated ... while product category momentum picked up by 200-300 basis points across-the-board. The rationale: if households are spending an incremental $250 per month to fill gas tanks, COST's price leadership, including Kirkland Signature, carries great significance."
Heinbockel maintained a Neutral rating on Costco's stock. Wall Street is more bullish on the shares, according to Yahoo Finance data.
"Because the impact of current fiscal stimulus is unclear, we assume NO incremental unit share gains during the next several months. We have also excluded temporarily sizable gas margins from our model, assuming a meaningful re-investment," Heinbockel said.
Costco had been rocking before the US war on Iran began.
Sales in February rose 9.5%. Comparable store sales improved 7.9%. Sales in the US rose 6%, Canada advanced 9.3%, and other international markets gained 10.9%. Online sales increased 20.8%.
Costco's stock is up 16% year to date compared to an 11% gain for Walmart (WMT), which owns rival Sam's Club.