Bernstein Says Costco Getting Expenses Under Control

It raises its 2004 earnings estimate by a few cents.
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Bernstein raised its investment rating on

Costco

(COST) - Get Report

, saying it believes the company is about to get a handle on its costs.

After speaking with management and store employees, Bernstein said it can see expenses under control beginning in 2005. As such, the brokerage upgraded Costco to outperform from market perform with a $37 target price and raised its 2004 estimates.

Specifically, the brokerage believes that Costco can realize a 5% to 10% reduction in health care expenses, which would add 2 cents to 4 cents a share to the company's earnings. Costco employees have not had an increase in health care costs in roughly five years, so they can likely contribute.

Also, Bernstein expects that the discount retailer "will maintain its industry leadership in terms of comp-store sales growth, which will be further buoyed by the easing comparisons going forward." The brokerage sees mid-single-digit or higher comp-store sales in the latter half of the calendar year.

Fiscal year 2004 earnings are now seen at $1.65 a share, up from a prior estimate of $1.62 a share, Bernstein said. Shares of Costco were recently up $1.10, or 3.5%, at $32.85.