Event: Discount warehouse retailer Costco (COST) reported earnings before the market opened on Wednesday. Costco said it earned $1.39 per share for the quarter ending Sept. 2. Analysts were expecting a profit of $1.31 per share. Revenue also beat expectations coming in at $32.22 billion versus an estimate of $31.66 billion. Shares of Cosco are up more than 4% in early trading on Wednesday on the news.
Analysis: There is no stop to the consumer. More importantly there is no stop to bullish investor enthusiasm for anything related to consumer spending. Today’s move in Costco has the company setting a new 52-week high. Where she stops is anyone’s guess. Certainly one can argue that Costco is in the sweet spot for future growth. Its discounts remain top-notch and consumer budgets are still tight. That dynamic is likely to be in play for the foreseeable future. Add in the fuel from QE Infinity and there is no telling how high Costco can fly. We are in momentum valuation mode today. Shares of Costco trade for 23 times estimated eaernings for the current fiscal year ending Aug. 31, 2013. Analysts expect Costco’s profits to grow by 15% in the current year. Certainly further P/E expansion is possible given the current easy money policy of the Federal Reserve. This one goes higher for the remainder of the year.
Action: Consider being long Costco for the remainder of 2012. The strength of the bulls will carry this stock further.
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