Costco Wholesale Corporation Stock Buy Recommendation Reiterated (COST)

Editor's Note: 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.

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 revenue growth, impressive record of earnings per share growth, compelling growth in net income, good cash flow from operations 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:
  • COST's revenue growth has slightly outpaced the industry average of 6.0%. Since the same quarter one year prior, revenues slightly increased by 9.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • COSTCO WHOLESALE CORP has improved earnings per share by 30.1% 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 $3.90 versus $3.31 in the prior year. This year, the market expects an improvement in earnings ($4.50 versus $3.90).
  • 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 30.0% when compared to the same quarter one year prior, rising from $320.00 million to $416.00 million.
  • Net operating cash flow has significantly increased by 65.96% to $1,102.00 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 30.22%.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. 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 engages in the operation of membership warehouses. The company offers branded and private-label products in a range of merchandise categories. Costco Wholesale has a market cap of $44.2 billion and is part of the services sector and retail industry. The company has a P/E ratio of 24.7, above the S&P 500 P/E ratio of 17.7. Shares are up 2.8% year to date as of the close of trading on Thursday.

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.

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