Costco Is 'One Of The Best Retailers In The World,' According to Wolfe Research

In a report Friday, Wolfe Research Scott Mushkin wrote that

proved once again why it is "one of the best retailers in the world" when the company reported its second quarter results. "We believe the value of a Costco membership is increasing and the company is seeing very strong renewal rates which are now up to 91% in the U.S. and Canada," Mushkin wrote. "A Costco member not only enjoys a superb retail store experience, but a compelling online offering and value-added services at a discount." Mushkin argued that Costco's valuation at 27.7x NTM consensus earnings per share is above the company's one, three, and five-year historical averages of 24.5x, 22.9x and 21.7x is warranted due to its strong business trends. The analyst added that a combination of superior merchandising and great prices should lead to an acceleration of revenue and EBIT growth that also justifies a multiple premium. Bottom line, with even though valuations have expanded recently and are largely above historical averages, the equity will likely trade sideways given fewer near-term catalysts. However, the analyst noted that his confidence in the business model and strategy is "higher than it has ever been" and the long-term prospects for better revenue and earnings growth remain "very compelling." Shares are Outperform rated with a $158 price target.