Why Costco Wholesale (COST) Stock Is Up Today

NEW YORK (TheStreet) -- Costco Wholesale Corp.  (COST) shares are up 0.8% to $117.29 on Thursday following news that the company's same-store sales rose 6% in May from a year ago.

Analysts polled by Thomson Reuters were expecting a 4.8% rise in same-store sales.

The company attributed higher gas prices to the better-than-expected sales numbers.

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TheStreet Ratings team rates COSTCO WHOLESALE CORP as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate COSTCO WHOLESALE CORP (COST) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 6.5%. Since the same quarter one year prior, revenues slightly increased by 5.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Net operating cash flow has significantly increased by 68.55% to $713.00 million when compared to the same quarter last year. In addition, COSTCO WHOLESALE CORP has also vastly surpassed the industry average cash flow growth rate of 12.33%.
  • The current debt-to-equity ratio, 0.43, is low and is below the industry average, implying that there has been successful management of debt levels. Despite the fact that COST's debt-to-equity ratio is low, the quick ratio, which is currently 0.56, displays a potential problem in covering short-term cash needs.
  • COSTCO WHOLESALE CORP's earnings per share declined by 15.3% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, COSTCO WHOLESALE CORP increased its bottom line by earning $4.63 versus $3.90 in the prior year. For the next year, the market is expecting a contraction of 0.6% in earnings ($4.60 versus $4.63).
  • In its most recent trading session, COST has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. 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.
  • You can view the full analysis from the report here: COST Ratings Report
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