UPDATE: Sterne Agee Initiates Costco Wholesale with Buy on Long-term Structural Advantages

In a report published on Wednesday, Sterne Agee analyst Charles Grom initiated coverage on Costco Wholesale COST with a Buy rating and a price target $130.00. In the report, Sterne Agee noted, "A key tenet to our Barbell Strategy is to identify retailers with long-term structural advantages. Costco has many, including: (1) its recurring membership fee annuity-like earnings stream (~75% of EBIT; ~90% renewal rates); (2) consistently strong traffic trends (+4-5% since 2010); (3) sizeable/profitable International growth pipeline that supports COST‟s goal to double its footprint (to 1,200+ stores); (4) industry leading inventory turns (~13x in 2012); and (5) pristine balance sheet (adj. debt/EBITDAR of only 0.5x, $10 cash per share). Importantly, more than 50% of Costco‟s store growth over the next five years will be outside the U.S. where EBIT margins are substantially higher (U.S. @ 2.3%/International @ 4.1%)." Costco Wholesale closed on Wednesday at $109.17.