- Baird reiterates its outperform rating on Costco shares, predicting the discount retailer will build warehouse clubs in China.
- "When combined with Costco's proven track record of successful international expansion, we see China as a good long term opportunity for the company to further grow its valuable membership fee income stream," the firm's analyst writes.
Costco is about to make a big splash into the world's second-largest economy, according to a Wall Street firm.
Baird reiterated its outperform rating on Costco shares, predicting the discount retailer will soon build warehouse clubs in China for the first time based on its official opening last week of a store on Tmall, which is run by China's e-commerce giant Alibaba.
"It appears COST is on the verge of a bigger push into China … last week's launch of an official flagship store on the 'Tmall' platform (with an expanded assortment of furniture, consumer electronics, and wine) suggests COST has broader ambitions for the market," analyst Peter Benedict wrote in a note to clients Thursday titled "Flying Below the Radar - China Expansion on Tap?"
The analyst explained "Tmall" store launches require special permission to operate in the Asian country. Consequently, it likely means Costco now also has a license to build stores in China, he said.
Benedict reaffirmed his $200 price target for Costco shares, which is 24 percent higher than Thursday's closing price.
"While management hasn't commented, we believe COST's first physical location in China could happen within the next year or two, and a local media report points to Shanghai as the most likely location," he wrote.
The analyst also cited the success of Wal-Mart's Sam's Club division in China, which now has around 20 stores in the country.
Wal-Mart "management has spoken in the past to China having some of the most productive units in the company's global footprint," he wrote.
Costco has 741 warehouses, including 514 in the U.S., 97 in Canada, 37 in Mexico, 28 in the United Kingdom, 26 in Japan, 13 in Korea, 13 in Taiwan, nine in Australia, two in Spain, one in Iceland and one in France, according to its most recent press release.
"Bottom line, when combined with COST's proven track record of successful international expansion, we see China as a good long term opportunity for the company to further grow its valuable membership fee income stream," Benedict wrote.
The company did not immediately respond to a request for comment.