Costco stock: Analyst estimates next membership fee hike and resulting 'windfall'

Costco execs flat out stated on its earnings call this month it's holding the line on membership fees (and the legendary $1.50 hot dog) even as rival Sam's Club recently jacked up prices.

But that hasn't stopped Wall Street from speculating when Costco will lift fees for a profit "windfall," according to Guggenheim analyst John Heinbockel.

"We see a membership fee hike in the second half of fiscal year 2023, a three-year [financial] windfall," Heinbockel said in a new note to clients. That would place the predicted hike between March and August 2023, he added, "with next spring, in our view, most likely."

Costco's last membership fee increase kicked in on June 1, 2017. The warehouse club took its Gold Star membership fee up $5 to $60 and executive membership fees increased by $10 to $120.

The potential for a membership fee increase is one of the main reasons why Heinbockel is staying bullish on Costco's stock, despite mounting economic pressures on consumers.

Here's the details behind the analyst's call.

• Price Target: N/A

• Rating: Neutral (reiterated)

Heinbockel thinks Costco is waiting for the perfect time to lift fees.

"The potential membership fee increase is the story that simply won’t end. Investors have been anticipating (and discounting) it for the past year, and, although management remains non-committal as to timing, we expect an increase during second half fiscal 2023. This would be sometime between March and August with next spring, in our view, most likely. This would be after the holidays, higher home heating bills this winter, and moderating food inflation. Sam’s Club’s recent increase is a positive, but Costco's decisions are always independent of the competition."

A fee increase could serve as a jolt to Costco's top and bottom lines.

"With roughly 55 million members in the U.S. and Canada—28 million Executive and 27 million Gold Star—the usual $10 and $5 increases would result in $400 million of incremental annual fees. However, this benefit is spread out over two years based on the cadence of renewals and monthly accruals. The impact would be modest in 2023 and much larger in 2024 and 2025."

Costco's stock tends to perform well around a fee increase (chart below).

"This is always a positive catalyst, usually 6-9 months in advance. Because of uncertainty with respect to both the macro backdrop and the timing of the membership fee increase, we believe it may not be discounted until a few months before the event or early 2023."

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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