NEW YORK (

TheStreet

) --

Costco Wholesale's

(COST) - Get Report

sore spots -- lower food and gas prices -- may soon be healing.

As a result, Costco was upgraded by Morgan Stanley on Tuesday to overweight from equal weight.

Shares of the company rose 2% to $56.58 in early morning trading.

Analyst Mark Wiltamuth said he expects to see gross margin recovery from higher sales in non-food categories and improvements in California. The state, one of the hardest hit by the recession, consists of 30% of Costco's store base.

Last week, Costco reported a 2% slip in

August same-store sales

, beating analysts' expectations of 5.7% decline.

Rival

BJ's Wholesale

(BJ) - Get Report

also surpassed expectations with a 6% drop. Wall Street forecast an 8% miss.

-- Reported by Jeanine Poggi in New York

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