Costco Stock – Count On COST to Keep Going Strong

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Plenty of stories are about the changing retail space, discussing the fate of traditional brick-and-mortar retailers like Target Corporation (NYSE:TGT), Wal-Mart Stores, Inc. (NYSE:WMT) and new online players like Amazon.com, Inc. (NASDAQ:AMZN).

costco earnings cost stockOne retail stock that generally slips under the radar is old-school-warehouse, mega-store chain Costco Wholesale Corporation (NASDAQ:COST).

And the reason Costco doesn’t make headlines is because it just keeps chugging along quietly. No big merger deals. No cyber crime headlines. No workers’ rights issues.

COST has a simple strategy that it sticks to, and Costco keeps on expanding and growing revenue.

Ho hum?

Hardly.

Costco has made warehouse shopping cool. Costco’s lack of pretense has nothing to do with the quality of the items it sells or the variety.

In 2014, COST was the highest rated specialty retailer in the country according to the annual American Customer Satisfaction Index. Costco’s guest satisfaction score stayed at a record high for 2014 while most other businesses lost ground.

What’s more, COST knows how to tweak its model. For example, when COST saw the growing trend in organic foods, it started offering more organic products. Sales have doubled in the past two years to $3 billion.

It’s also worth noting the most organic products have higher margins than non-organic products, and more than half of Costco’s business is its food business.

What will also help margins is low fuel prices. Since everything is shipped into Costco stores, transportation costs are a big part of the company’s margins. Low fuel prices mean more stays in corporate coffers.

Most attractive of all is the fact that COST earnings are continuing to grow at a very healthy pace. Recently reporting its Q2 of fiscal year 2015, earnings-per-share rose 29%, soundly beating analysts’ estimates. Costco had its the third straight quarter of strong EPS growth.

Analysts are starting to get bullish as well. Credit Suisse and S&P Capital IQ have both recently raised their ratings on COST.

COST also is seeing its sales grow faster than its labor costs, which is a good sign moving forward, and Costco has one of the highest workplace satisfaction scores in the entire retail space. It’s proof that its simple model, done right is a very good, solid business.

One thing to watch however is the fact that overseas expansion may effect Costco’s bottom line. Ironically, diversifying abroad would generally be a good strategy but with the value of the U.S. dollar so high relative to most other major currencies, the international division of COST may hamstring performance if currencies don’t adjust to a more normal range.

Costco is also a little more expensive than its food business competitors, which may slow its recent rise. Given the love Costco’s 70 million members have for it, there’s little doubt COST will do well in current economic conditions, both in the U.S. and abroad.

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip GrowthEmerging GrowthUltimate GrowthFamily Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.


Article printed from InvestorPlace Media, https://investorplace.com/2015/03/retail-stock-costco-cost-food-business/.

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