Costco (COST) could be on pace to have a big month of sales for May as its members along the East Coast hoard gas following the shutdown of the Colonial Pipeline due to a ransomware cyberattack.
The warehouse giant is one of the country’s largest gasoline distributors, often under cutting competing gas stations on price to net a sale from its members (who are the only ones allowed to buy gas at Costco). Yahoo Finance analysis finds that Costco operates gas stations at about 88% of its 559 U.S. warehouses. Our analysis reveals roughly 21% of those gas stations are situated along the East Coast where the gas shortages because of the hacking incident have been the most pronounced.
The largest East Coast market for Costco’s gas business is Florida with 27 stations, Yahoo Finance’s analysis shows.
Costco’s financial statements are likely winning amid the gas shortage for several reasons.
First, Costco is selling higher priced petrol due to limited supplies which has the effect of lifting sales and profits. And two, Costco members are probably stocking up on food and other merchandise when they go and purchase gas out of fear of running out of petrol within days.
An argument could be made that Costco has already benefited greatly from rising gas prices this spring that has brought the nationwide average to over $3.00 a gallon.
Costco shocked investors on May 5 with a blowout April sales report. Factoring in gasoline sales (and the higher prices), Costco’s U.S. same-store sales surged 30.4% in the month. Excluding sales at its gas stations, same-store sales still spiked in April to the tune of 24.9%.
Shares of Costco have outperformed the broader market in the aftermath of the sales release — shares are up 2% month to date versus a 1% drop for the S&P 500.
“Own the king. March and April’s performance clearly prove the many reasons to own Costco,” JPMorgan analyst Christopher Horvers said.
Added Horvers, “As 2021 progresses, whether the consumer is eating more at home or feeling good enough to engage in the treasury hunt atmosphere of its 140K s.f. box (or use its attractive travel options), we see COST as a share gainer. Moreover, no other retailers metered traffic in its stores like Costco (see April 2020’s flat comp despite massive stimulus last year and we even had to wait in line this January). Costco also has ballasts in its assortment that are pro-reopening (e.g.,discretionary mix, e-commerce business, travel, gas, and food court). Combined, we believe this suggests the tough laps aren’t as hard as they look, especially in light of record high consumer savings.
Horvers rates Costco’s shares an Overweight (equivalent of Buy) with a price target of $410.