Costco Stock Could Break Out After Analyst Upgrades

Costco Wholesale Corporation (COST) shares rose nearly 3% after a series of analyst upgrades. Last week, the company reported that its March same-store sales increased by 5.8%  to $12.9 billion, excluding gasoline prices and foreign exchange. Several analysts weighed in on the announcement, saying that the sales underscore the strength of its business model and suggest strong potential for improvement ahead.

Stifel analysts believe the trends show that Costco's value proposition is winning among customers and reiterated their firm's Buy rating and $200 per share price target. Baird analysts suggested that the results underscore the durability and relevancy of Costco's business model and reiterated their Outperform rating and $215 price target. Wells Fargo analysts upgraded the stock, saying that a special dividend could come soon. (For additional reading, check out: Costco’s Business Model Is Smarter Than You Think.)

From a technical standpoint, the stock broke out from trendline resistance to R1 resistance at around $194.00. The relative strength index (RSI) moved toward overbought levels with a reading of 63.22, but the moving average convergence divergence (MACD) experienced a bullish crossover. These indicators suggest that the stock could see further upside over the long term, but there could be some short-term consolidation.

[Learn more about supplemental technical indicators like the RSI and the MACD in Chapter 4 of the Technical Analysis course on the Investopedia Academy]

Traders should watch for a breakout from R1 resistance to R2 resistance at $199.58 or a move lower to retest trendline or pivot point support at around $187.42. With the favorable same-store sales data, the stock is likely to continue to trend higher over the intermediate to long term, although the stock's move higher over the past few sessions could lead to some profit taking before attempting to break out from highs made earlier this year.

Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.