"It does not materially impact Costco's unique business model"

By Katie Reilly
June 26, 2017

A Wall Street analyst says he is bullish about Costco stock despite the potentially disruptive merger between Amazon and Whole Foods Market — and even after the bulk grocery store’s stock fell 12.7% on Friday.

The slide came in the wake of the June 16 announcement that Amazon would acquire Whole Foods. But analysts for Raymond James Financial predicted on Monday that Costco would not be “materially impacted” by the merger, CNBC reported. The financial services company raised its rating for Costco shares from market perform to outperform.

“Admittedly, even with the recent pullback, Costco still trades at a premium valuation to the overall market and its large retail peers. Nonetheless, its business model remains intact with healthy membership growth and strong renewal rates,” Raymond James analyst Budd Bugatch wrote in a note to clients reported by CNBC. “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.”

Grocery stocks plunged after the Whole Foods-Amazon merger was announced, and some Wall Street analysts downgraded Costco. But on Monday, Bugatch estimated that Costco sales will rise to $139 billion in 2018, up from $129 billion this year, CNBC reports.

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