Analyst Weighs in on Costco (COST) Following News of E coli Outbreak

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Before the long weekend, Costco Wholesale Corporation (NASDAQ:COST) reported that the FDA is investigating whether the company’s vegetable mix, specifically the onions and celery, was to blame for the recent E coli outbreak stemming from its Rotisserie Chicken Salad. The outbreak affected those who ate the salad between October 6 and November 3.

The FDA reported that 19 people from 7 states have been affected by the bacteria, with 5 being hospitalized. According to the CDC, 88% of those affected reported eating the salad a week before experiencing symptoms. As of November 20, Costco has removed all of its Rotisserie Chicken Salads from its stores. After yesterday’s development, Costco’s VP of Food Safety and Quality Assurance Craig Wilson stated that it uses one supplier, Taylor Farms in Salinas, California, for the vegetables used in its Rotisserie Chicken Salad. However, according to Wilson, this supplier must undergo one additional test to confirm its vegetables are connected to the E coli outbreak.

Following this news, analyst Oliver Chen of Cowen & Co. weighed in on the company, reiterating his Outperform rating and keeping his $165 price target. He believes that this scandal is insignificant due to the small number of people affected in a lower number of states compared to Chipotle, which also had a recent E coli outbreak linked to its stores. Chen states, “We’re cognizant that food scares are fluid situations and present negative headline risk, but we see minimal traffic risk to Costco thus far given small scale (19 people, 7 states), product already removed from stores, & it is a different e.coli strain/different states than CMG case.”

Overall, analyst Oliver Chen has a 45% success rate recommending stocks with an average return of 5.4% per recommendation. According to TipRanks’ statistics, out of the 13 analysts who have rated Costco in the past 3 months, 9 gave a Buy rating while 4 remain on the sidelines. The average 12-month price target for the stock is $165.58, marking a 2% upside from where shares last closed.

Oliver Chen

 

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