Costco Wholesale shoots and scores
The warehouse store chain posts impressive gains.
Costco Wholesale (COST), whose stock has barely budged this year, has defied the skeptics yet again.
Net income for the quarter ended Feb. 12 was $394 million, or 90 cents per share, up 13% from $348 million, or 79 cents, a year earlier. Sales at the Issaquah, Wash., company rose 10% to $22.51 billion, fueled by gains in gasoline sales. The results topped Wall Street's expectations of profit of 87 cents on revenue of $22.83 billion.
Excluding gasoline sales, same-store sales, a key metric, rose 7% in the U.S. and 9% internationally. That tops the recent 1.5% sales gain in Wal-Mart (WMT) stores open at least a year and the 4.4% gain in the current quarter forecast by Target (TGT). There are a few reasons for this outperformance.
First, Costco shoppers tend to be wealthier than shoppers of other stores. As the economy rebounds, these consumers are beginning to ratchet up their spending on discretionary purchases such as home electronics, which Costco sells. The chain also sells supplies to small businesses such as restaurants, whose fortunes also are improving along with the broader economy.
Wall Street, though, thinks Costco is about to run out of gas.
The average one-year price target on the stock is $84.83, above where it recently traded. This makes no sense. Wall Street analysts expect revenue in the quarter to gain 6.7% to $22 billion, beating the 6.1% increase predicted at Wal-Mart and the 3.9% gain forecast for Target.
Costco isn't a typical retailer. Besides selling stuff in bulk, the company also offers a wide variety of goods and services such as travel deals, helps in buying new cars and even caskets. The company is uniquely positioned to benefit from the economic recovery.
Costco shares are not cheap, trading at a forward multiple of 19.47 versus 11.64 for Target and 11.14 for Wal-Mart. Investors should wait for a pullback before adding Costco to their portfolios.
Jonathan Berr is long Target.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
A sustained rally could have important implications for American and multinational companies, potentially resounding across the stock market.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.