Costco Wholesale Corporation Stock Buy Recommendation Reiterated (COST)

NEW YORK (TheStreet) -- Costco Wholesale Corporation (Nasdaq:COST) has been reiterated by TheStreet Ratings as a buy with a ratings score of A. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, increase in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel these strengths outweigh the fact that the company shows low profit margins.

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Highlights from the ratings report include:

• COSTCO WHOLESALE CORP has improved earnings per share by 20.5% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, COSTCO WHOLESALE CORP increased its bottom line by earning $3.31 versus $2.92 in the prior year. This year, the market expects an improvement in earnings ($3.87 versus $3.31).
• The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Food & Staples Retailing industry average. The net income increased by 19.1% when compared to the same quarter one year prior, going from $324.00 million to $386.00 million.
• Despite its growing revenue, the company underperformed as compared with the industry average of 8.3%. Since the same quarter one year prior, revenues slightly increased by 8.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
• COST's debt-to-equity ratio is very low at 0.11 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Despite the fact that COST's debt-to-equity ratio is low, the quick ratio, which is currently 0.57, displays a potential problem in covering short-term cash needs.
• The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.

Costco Wholesale Corporation operates membership warehouses that offer a selection of branded and private label products in a range of merchandise categories in no-frills, self-service warehouse facilities. The company has a P/E ratio of 25.7, equal to the average retail industry P/E ratioand above the S&P 500 P/E ratio of 17.7. Costco Wholesale has a market cap of $39.72 billion and is part of the services sector and retail industry. Shares are up 10.2% year to date as of the close of trading on Wednesday.

You can view the full Costco Wholesale Ratings Report or get investment ideas from our investment research center.

--Written by a member of TheStreet Ratings Staff.

TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

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