Tech

Spotify Upgraded, Costco Target to $962 Amid Growth

Costco raises membership fees, boosting price target to $962; Spotify upgraded with 26.2% upside potential.

By Alex P. Chase

7/11, 06:05 EDT
Apple Inc.
Costco Wholesale Corporation
Spotify Technology S.A.
Tesla, Inc.
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Key Takeaway

  • Bank of America raised Costco's (COST) price target to $962, citing a membership fee hike expected to generate $370-$380 million in additional income.
  • Jefferies upgraded Spotify (SPOT) to buy with a $385 target, highlighting confidence in sustainable 15%+ revenue growth and potential for subscription price increases.
  • Apple (AAPL) and Tesla (TSLA) are on notable winning streaks, with Apple up 40% from yearly lows and Tesla up nearly 90% from April lows.

Costco Membership Fee Increase

Bank of America has raised its price target on Costco following the retailer's announcement of an increase in its annual membership fees. Analyst Robert Ohmes increased the price target by $88 to $962, suggesting an 8.8% potential gain for Costco shares. This year, Costco shares have already advanced nearly 34%. The membership fee hike, the first since 2017, will see the annual fee in the U.S. and Canada rise by $5 to $65, and the higher-tier membership fee increase by $10 to $130.

Ohmes credited the fee hike and Costco’s continued strength in same-store sales as catalysts for the company's earnings visibility into fiscal years 2025 and 2026. He estimates that the fee increase will drive between $370 million and $380 million of incremental membership fee income over the next two fiscal years. However, Costco does not expect an impact on its earnings per share from the fee increase. "We ... expect COST to gain share in the current environment as consumers continue to adjust to higher prices, making COST’s impressive value proposition and price positioning even more attractive," Ohmes said in a Wednesday note.

Spotify Upgrade

Jefferies has upgraded Spotify Technology to a buy from hold, with a price target of $385, implying a 26.2% upside from Wednesday’s close. Analyst James Heaney expressed increased confidence in Spotify's ability to deliver sustainable 15%+ revenue growth over the next three years. "We are increasingly confident in SPOT’s ability to comfortably deliver sustainable 15%+ rev growth over the next 3 years," Heaney wrote. Heaney also noted that music is about to undergo a multi-year repricing, with Spotify subscriptions currently at $12 per month compared to $61 per month spent on video streaming. He believes there is room for price increases at least every other year.

Spotify shares have surged 62% in 2024, adding to last year’s 138% jump. The upgrade reflects Jefferies' positive outlook on Spotify's growth potential and market positioning.

Apple and Tesla Performance

Apple has been on a seven-day winning streak, closing at a record high each day. This marks its longest streak of record closes since 2012. Shares have climbed 10% during this run and are now up over 40% from their lows of the year. Needham has upped its target on Apple to $260 from $220, suggesting more than 10% upside.

Tesla has also extended its win streak to 11 days, its longest since a 13-day streak that ended in June of last year. The stock is up 45% during this most recent run and nearly 90% from its April low. While Tesla is the big laggard among the Magnificent Seven this year, up just 6% compared to 172% for leader Nvidia, it’s by far the winner in Q3, up 33%.

Street Views

  • Robert Ohmes, Bank of America (Bullish on Costco):

    "We … expect COST to gain share in the current environment as consumers continue to adjust to higher prices, making COST’s impressive value proposition and price positioning even more attractive."

  • James Heaney, Jefferies (Bullish on Spotify Technology):

    "We are increasingly confident in SPOT’s ability to comfortably deliver sustainable 15%+ rev growth over the next 3 years. Underscoring our confidence ... is our view that music is about to undergo a multi-year repricing. At just $12/mo for a Spotify subscription (vs. $61/mo spent in aggregate on video streaming), we believe there is room for price increases AT LEAST every other year."