WMT, COST or KO: Which Consumer Goods Company is the Best Choice?

Companies that produce essential goods tend to be resilient in tough macroeconomic times. That’s because they sell products that are considered essential to everyday life. Using TipRanks’ stock comparison tool, we put Walmart (WMT), Costco (COST), and Coca-Cola (KO) side by side to find the best essential goods stocks, according to Wall Street analysts.

Walmart (NYSE:WMT)

Shares of major retailer Walmart have risen about 30% this year. WMT impressed investors with upbeat results for the first quarter of fiscal 2025 (ended April 30, 2024). The 22% increase in Q1 fiscal 2025 adjusted earnings per share (EPS) was driven by strong revenue growth, higher gross margin, and membership revenue.

Walmart Value continues to attract bargain-hunting shoppers amid a challenging macroeconomic environment. The company’s grocery business is seeing strong growth, with many shoppers opting to cook at home rather than eat out due to high inflation.

WMT is also gaining strength in its e-commerce business. In Q1 FY25, WMT’s e-commerce sales grew by 21%, driven by store pickup and delivery and the company’s growing market. Importantly, the company is looking to increase its profitability by focusing on high-margin businesses such as advertising, membership, marketplace and fulfillment solutions, and data analytics and insights.

Walmart is scheduled to report fiscal second-quarter financial results on Aug. 15. Analysts are expecting the company’s earnings per share to rise 6.5% to $0.65 per share, with revenue rising more than 4% to $167.4 billion.

Are Walmart stocks worth buying right now?

Last week, BMO Capital analyst Kelly Bania raised his price target on WMT shares from $75 to $80 and reiterated a Buy rating after meetings with the company’s management. The analyst said Walmart is well-positioned to grow its EBIT (earnings before interest and taxes) at a faster pace than sales, even as the company continues to make growth investments.

The analyst believes management’s expectation that U.S. e-commerce operations will become profitable within the next one to two years is achievable. His optimism is supported by a 40 percent reduction in shipping costs in recent quarters, benefits from supply chain automation and an increase in customers willing to pay for faster shipping options.

Walmart shares receive a Strong Buy consensus rating, supported by 27 Buys and three Holds. WMT shares’ average price target of $74.11 implies 8.3% upside potential. WMT offers a dividend yield of 1.2%.

Costco Wholesale (NASDAQ:COST)

Member-only warehouse chain Costco Wholesale continues to impress investors with its consistent performance. Costco’s resilient performance is supported by its value propositions and loyal customer base. The company generally enjoys membership renewal rates of around 90%.

Despite macroeconomic pressures, Costco reported better-than-expected sales results for June. The company’s net sales for the retail month of June (the five weeks ended July 7, 2024) increased 7.4% to $24.48 billion. Comparable sales for June increased 5.3%, and e-commerce sales increased 18.4%.

The company recently announced a long-awaited increase in its membership fee. Investors welcomed the news, as Costco’s membership fee makes up a significant portion of the company’s operating profit.

What is Costco’s target price?

Following the announcement of the membership fee hike, TD Cowen analyst Oliver Chen raised his price target on Costco shares from $850 to $925 and reiterated a Buy rating.

The analyst believes the company’s digital innovation, personalization, and market opportunities support its high valuation.

With 19 Buys compared to six Holds, Costco stock has a consensus rating of Strong Buy. The average price target for COST stock of $910.05 implies about 11% upside potential. The stock is up 24.5% this year. COST stock has a dividend yield of 0.5%.

Coca-Cola (NYSE:CO)

Shares of soda giant Coca-Cola have risen about 18% since the beginning of the year. Last month, the company reported better-than-expected second-quarter results, with organic revenue up 15%. The company’s results reflected solid execution in a challenging business environment.

Given the solid Q2 results, KO raised its full-year organic revenue growth forecast to between 9% and 10%, from its previous forecast of between 8% and 9%. The company also raised its comparable earnings growth forecast.

Coca-Cola has been in the news for the past week due to an unfavorable development in its legal dispute with the U.S. Internal Revenue Service. The company must pay $6 billion in back taxes and interest to the IRS. While Coca-Cola will pay the tax penalty, it will appeal the federal tax court decision.

TD Cowen analyst Robert Moskow said there could be negative implications for the company’s tax rate if KO loses the appeal, although “relatively minor.” The analyst added that his EPS estimate would fall by almost 5% if KO’s tax rate were to rise from 19% to 24%.

Is KO a good stock to buy?

Most analysts covering KO stock remain bullish on its prospects. In response to Coca-Cola’s second-quarter results, RBC Capital analyst Nik Modi reiterated a Buy rating on KO stock and raised his price target to $68 from $65, citing strong revenue growth, volume momentum and high-quality earnings for the quarter.

However, the analyst noted the company’s comment about a weaker third quarter due to difficult sequential comparisons and the weak performance of some developed markets.

Overall, Coca-Cola has a consensus rating of Moderate Buy based on 14 Buys and six Holds. The average price target for KO shares of $69.79 indicates that the shares are fairly valued at current levels. KO offers a dividend yield of 2.8%.

Application

Wall Street is very bullish on Costco and Walmart, and cautiously bullish on Coca-Cola. Analysts currently see comparable growth potential for Costco and Walmart. Both have proven the strength of their business models and continue to attract customers with their value propositions.

While Wall Street has Strong Buy ratings on COST and WMT stocks, it’s interesting that hedge funds have a Very Positive Confidence Signal on WMT stock, but a Negative Signal on Costco. Hedge funds added 11.5 million shares to their holdings of WMT in the last quarter. Hedge funds reduced their holdings of COST by 1.1 million shares during the same period.

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