What Costco raising its membership fees means for the stock

Yahoo Finance's Brian Sozzi discusses Costco's upcoming hike in fees and what that means for the stock.

Video Transcript

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JULIE HYMAN: If you are a Costco shopper, take heed, your membership fees might be going up but I don't know about when. Let's see, what are we hearing here, Brian Sozzi on this important front?

BRIAN SOZZI: Yeah. well, it is very important. You have a lot of Costco members out there, Julie, and you also have a lot of Costco investors that have ridden this stock really to some big gains this year. Costco has been an absolute home run of an investment this year yet again.

But Guggenheim analyst, John Heinbockel coming out with an interesting note, saying we may only be eight to nine months away from the next Costco membership price increase, which will range likely by $5 to $10. And Heinbockel's research shows historically that has been a good thing for Costco's stock price. Usually, Heinbockel went back to historical data and came up with that Costco's stock has risen about 11% in the three months before a membership fee increase is announced. Obviously, that is good. It gets even better if you zoom out to a six-month time frame, that's the stock has risen about 15% ahead of a membership fee increase, which Heinbockel is predicting about will likely come in September of 2022.

And it's long overdue, I mean, Costco has been very late to push through membership price increases in the past. Its last one came in 2017 despite all the inflation it is seeing in transportation and worker hours, back in June 2017 it raised prices by $5 for its gold membership, that's the entry-level one and $10 for its executive membership. And then the one-- the last time it did that going back to 2006 May 1st, 2006 it announced a $5 increase for its entry-level membership. So historically, Costco does not like to do this but again, they just might have to.

Overall, here's my take, Costco likely had a very strong holiday shopping season. You're seeing a lot of analysts out there estimate a 10% same-store sales increase for Costco for the month of December. Costco will report those numbers early on in January. As I just mentioned, the membership fee hike will be a strong profit tailwind for Costco. If it should happen next year. Historically, Costco has seen major increases in profits and sales when they have pushed through these price increases. And last but not least, Costco's stock is not cheap. You have to pay up to own the growth story that is Costco.

JULIE HYMAN: Very interesting. And maybe people are going to have to pay up to be members. We'll see when that-- went and if that membership fee increase actually happens.

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