PriceSmart stock: Jefferies reiterates Buy rating on strong membership growth

Jefferies reiterated its Buy rating and $120 price target on PriceSmart (PSMT), citing strong Q3 performance marked by an 8% merchandise sales increase, 13.4% growth in membership income, and revenue of $1.32 billion, which exceeded consensus. While reported EPS was $1.14, it would have been higher excluding non-cash losses, contributing to an 8.2% rise in net income. The warehouse club operator, known for 19 consecutive years of dividend payments and resilient five-year growth, is considered a "top pick in Latin America SMIDs" by Jefferies, with potential expansion into Chile further supporting its growth trajectory and reflecting investor confidence.

Analysis

Jefferies has reiterated its "Buy" rating and $120.00 price target for PriceSmart (PSMT), underpinned by a strong third-quarter performance that demonstrates operational resilience and sustained growth. The company's fiscal Q3 revenue of $1.32 billion surpassed consensus estimates, driven by an 8% increase in merchandise sales (9.5% in local currency) and a 7% rise in same-store sales, which were fueled by a 6% increase in transactions. A key strength is the membership model, with membership income growing 13.4% to $21.9 million, now accounting for 63% of net income. This is further enhanced by a 14% quarter-over-quarter expansion in high-value Platinum members, indicating successful upselling. While reported EPS of $1.14 slightly missed the $1.15 consensus, this figure was suppressed by $7.2 million in mostly non-cash losses; excluding these, EPS would have been $1.40. Profitability remains robust, with net income rising 8.2% to $35.2 million and EBITDA growing 11% to $77 million. The company's long-term track record, featuring a 10% U.S. dollar sales CAGR over five years and 19 consecutive years of dividend payments, alongside potential expansion into Chile, reinforces Jefferies' classification of PSMT as a "top pick in Latin America SMIDs."

Key Decisions for Investors

• Investors may view the reiterated Buy rating and strong underlying fundamentals, including a revenue beat and 9.5% constant-currency sales growth, as supportive of a long position, especially given the stock's defensive beta of 0.79 and consistent dividend history.
• It is prudent to look past the minor headline EPS miss and focus on core operational profitability, evidenced by the 11% EBITDA growth and what would have been a significant earnings beat absent non-cash charges.
• Future growth catalysts to monitor include continued penetration of the premium Platinum membership tier and concrete developments regarding the company's potential market entry into Chile, while also accounting for foreign currency fluctuation risks which negatively impacted sales by 1.5%.