Morgan Stanley: Costco Wholesale Q4 'Fine,' And The Stock Is Relative Outperformer Of Late

• Costco Wholesale Corporation COST has seen an almost 6 percent rise in its share price over the past 3 months, despite the share reaching a low of $132.71 on August 5
• Morgan Stanley’s Simeon Gutman has maintained an Overweight rating on the company.
• Gutman believes that the company reported a “decent performance” for Q4, despite tough compares, which should help sustain the positive sentiment towards the stock as well as its relative gains in recent months.

Analyst Simeon Gutman reported that Costco Wholesale reported its EPS for Q4:15 ahead of the consensus, aided by a tax benefit of $0.06. Gas gross profits are also likely to have contributed to the EPS beat, a trend that is likely to continue into Q1.

However, the company also witnesses Fx headwinds during the quarter, which worsened from the levels seen in Q3 and impacted earnings by an estimated $0.07 in Q4. The Fx impact lead to a “headline miss” in membership income, although local currency membership was better than expected.

“With a deepening forex headwind, this supports our view that membership income is accelerating,” Gutman stated, while adding that the gross margin for the quarter beat the consensus, coming in at 11.4 percent, the highest level seen in more than 10 years.

Wholesale fuel costs fell 19 percent during the quarter, while prices at pumps fell less than 3 percent, which Gutman believes helped Costco Wholesale’s gross profit expansion.

“In typical COST fashion, the company likely re-invested some of the additional gasoline driven gross profit into lower core prices,” Gutman added.