NEW YORK (TheStreet) -- Costco Wholesale (COST) shares are down 1.26% to $139.63 in early market trading on Friday after the big box retailer's rating was cut to "neutral" from "buy" by analysts at Janney before the opening bell today.
The company reported a 17% increase in profit in the quarter ending in November, and said that the boost was driven by lower gasoline prices along with same store sales growth and strong income from membership fees.
However, analysts at the firm believe that the windfall the company received from lower gasoline prices will be reversed in the coming months as the price of oil fluctuates. The firm also noted that a stronger dollar will hurt the company's bottom line.
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, growth in earnings per share, increase in net income, 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."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- COST's revenue growth has slightly outpaced the industry average of 1.1%. Since the same quarter one year prior, revenues slightly increased by 7.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
- COSTCO WHOLESALE CORP has improved earnings per share by 16.7% 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 $4.66 versus $4.63 in the prior year. This year, the market expects an improvement in earnings ($5.17 versus $4.66).
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Food & Staples Retailing industry average. The net income increased by 16.7% when compared to the same quarter one year prior, going from $425.00 million to $496.00 million.
- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. 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.
- The current debt-to-equity ratio, 0.41, 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 0.55, displays a potential problem in covering short-term cash needs.
- You can view the full analysis from the report here: COST Ratings Report